There are a number of reasons to expect farmland values to be higher near urban areas. Many urban centers initially grew among particularly fertile soils so farmland near these areas tends to be quite productive. Farms near urban areas have greater access to markets and ports and therefore lower transportation costs. As a result, these farms may generate economic profits above comparable lands further from the urban center. In addition, at the urban fringe, farmland offers recreational opportunities and lifestyle amenities which serve the nearby population. Farms near urban areas are also more susceptible to development pressures. Their values may be "bid up" by competing land use activities, including commercial and residential uses. It is not surprising then that the existing literature suggests urban influence is a dominant factor in the determination of agricultural land values (Blank, 2007).

This article examines the role of urban influence on U.S. cropland values. Based on farmer-reported data from USDA/NASS June Area Survey (JAS), urban pressures exhibited significant influence on U.S. cropland values during the 1999 through 2010, a period of significant volatility in urban real estate markets, as well as increasing farm incomes and record high commodity prices.

Measuring urban influence

The Economic Research Service developed the Population Interaction Zones for Agriculture (PIZA) in order to better understand the economic relationship between urban and agricultural areas. Here, regions are identified as “rural” or “urban-influenced” based on the potential population interaction between nearby urban-related population and agricultural production activities. Figure 1 shows the median, inflation-adjusted value per acre of cropland identified for rural and urban-influenced parcels from 1999 to 2010. Median values in urban-influenced areas are consistently above those in rural areas throughout the observation period.

The difference between urban-influenced and rural values ranges from $1,576 in 2006 to $2,122 in 2000, with an average difference of $1,820 per acre. However, the average annual inflation-adjusted growth rate for rural cropland values is greater than that of urban-influenced areas at 4.8 percent compared to 1.5 percent.  This suggests the difference between urban-influenced and rural cropland values is narrowing which can be observed by the dashed line in Figure 1. In addition, the median values for rural and urban-influenced cropland values do not appear to move together. The median value of urban-influenced cropland was at its lowest point at the beginning of 2003 and peaked at of $4,400 at the end of 2007. This mirrors the changes in urban housing values over the same period. In contrast, the median value of rural cropland was at its lowest point at the beginning of 2001 and has exhibited a less pronounced decline following a high of $2,447 at the end of 2007.