LINCOLN, Neb. (DTN) -- The Renewable Fuel Standard was one of the most consequential agriculture land policies in U.S. history. It transferred hundreds of billions of dollars in wealth to Midwest landowners and restructured who can afford to farm, according to a newly published study.

The RFS, which was originally created in 2005 and updated in 2007, created a large and sustained wealth transfer to Corn Belt landowners -- especially in counties with highly productive corn acres, the study said.

Farmland values in high-corn-suitability counties increased by about $1,147 to $1,362 per acre after 2005, or roughly a 44% gain relative to pre-ethanol boom levels, the study said.

The study, "Biofuel Growth: The Unintended Effects of the Ethanol Boom on Farmland Values," was authored by Hoanh Le in the Ness School of Management and Economics at South Dakota State University and Oscar Galvez-Soriano in the department of economics at the University of Chicago.

There were "substantially larger effects" of close to 70% increases in farmland values in the most productive counties.

"These effects intensified after 2012, consistent with the escalation of RFS blending mandates and peak ethanol expansion," the researchers said.

"The effects grow over time: The estimated impact in 2007 is small and statistically insignificant, but by 2012 and 2022, farmland values in high-suitability counties had risen substantially, consistent with the expansion of Renewable Fuel Standard mandates and peak ethanol production."

The researchers found that lower-income counties responded faster to the first RFS in 2005, likely because their land supply is more inelastic, and their economies are more directly tied to corn.

The study authors conclude that the RFS ultimately raised serious rural equity and land access concerns that need to be further studied.

"Taken together, our results highlight how large-scale energy policies can reshape agricultural land markets in ways that extend well beyond their original objectives," the study said.

"By substantially increasing the value of farmland, the ethanol boom likely altered patterns of wealth accumulation in rural areas and may have affected access to land for new and beginning farmers. While data limitations prevent us from directly estimating these distributional outcomes, the magnitude and persistence of farmland appreciation documented in this paper suggest that biofuel policy may have had broader implications for rural inequality, land access and local economic dynamics."

ETHANOL BOOM

The ethanol boom is tracked from 2004 to 2017, when the number of ethanol plants surged 178% from 74 to 200 plants. The study found that Iowa, Nebraska and Illinois alone accounted for about half of U.S. ethanol production.

The study identified two distinct mechanisms that compounded to drive up land values after the RFS became law.

In the first stage, rising corn prices boosted farm profitability and eventually capitalized into land values between 2007 and 2012. The second stage, according to the study, is the ethanol boom began to attract both farmers and outside investors to productive corn ground.

Perhaps the most compelling evidence of this, according to the study's authors, is that even after 2014 when corn prices declined, farmland values continued to rise. The study said the ethanol boom created a general shift in land demand independent of corn prices.

In short, the study said the RFS didn't just inflate land values via crop prices; rather, it permanently altered investor expectations about long-run productivity and demand for corn-suitable land.

"In expanding-area counties, farmland values increased steadily after the ethanol boom, consistent with the capitalization of higher corn prices," the study said.

"In fixed-area counties, however, the effects were stronger, suggesting that greater demand for farmland provided an additional source of appreciation. Together these results indicate that both mechanisms -- corn prices and farmland demand -- played a role with the demand channel becoming increasingly important over time."

The study said all farmland value data used are adjusted for inflation to 2017 dollars, using the Consumer Price Index published by the U.S. Bureau of Labor Statistics.

In addition to farmland values, the authors extracted information on acres of corn harvested, government payments and total cropland area from the Census.

The study observed 1,048 counties across 12 Midwestern states covering six census years, 1997, 2002, 2007, 2012, 2017 and 2022. That yielded a total of 6,288 county-year observations.

"On average, agricultural land is valued at about $3,560 per acre," the study said.

"A typical county has about 323,210 acres of agricultural land, with cropland representing roughly 71% of the total, and corn planted on about 22% of the land."

The study also found that the ethanol boom had "progressively stronger effects" in areas with higher soil productivity where corn production is most intensive.

The effect grows larger across higher quintiles, or datasets sorted from lowest to highest soil productivity.

The study found land values rose by $1,485 in the middle quintile, by $1,603 in the second-highest quintile and by $2,100 in the highest.

Todd Neeley can be reached at todd.neeley@dtn.com

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