Presentation on theme: "What is locational rent? It is the difference between the revenue received by a farmer for a crop grown on a piece of land and the total cost of producing."— Presentation transcript:
What is locational rent? It is the difference between the revenue received by a farmer for a crop grown on a piece of land and the total cost of producing and transporting that crop. It is therefore the profit from a unit of land.
LR=Yp-Yc-Ytd LR = locational rent Y = yielding (tonne/ha) p = price ($/tonne) c = production cost ($/tonne) t = unit transport cost ($/tonne/km) d = distance from market (km) Total Revenue Production cost Transport cost
Assumption: An ‘isolated state’ sole market and sole supplier Perfect competition uniform plain farmers aim to maximize profit single mode of transport(uniform unit transport cost) transport cost is direct proportional to distance and weight
Market conditions: Perfect competition was assumed. There are numerous buyers and sellers. Market price is determined by supply and demand. Farmers are economic men who are well-informed and aim at profit maximization.
Von Thunen’s Model Market gardening Forestry 6-year crop rotation 7-year arable (with fallowing) Three-field system livestock farming
Distance Locational rent Effect of a navigable river
Von Thunen’s Model with navigable river Market gardening Forestry 6-year crop rotation 7-year arable (with fallowing) Three-field system livestock farming
Effect of a new town Distance Locational rent
Von Thunen’s Model with new town Market gardening Forestry 6-year crop rotation 7-year arable (with fallowing) Three-field system livestock farming
Which of von thunen’s principles are still true? more intensive farming can be found near to urban market perishable farming products such as milk should be produced near urban market
Which of von Thunen’s assumption are unrealistic there is a uniform plain transport cost is directly proportional to distance and weight man is economically rational
Major changes in farming since von Thunen’s time improvement in transport technology rapid decrease in unit transport cost international regional specialization and division of labour rapid urban development and strong anticipation of urban encroachment
Neglected factors the active role of government / institutional factors perception of farmers / behavioural factors
Underlying forces of Sinclair’s Model Transport technology Improved and more efficient means of transport have displaced former methods. Costs of transport have declined greatly in relation to most other agricultural production costs. Transport costs are not directly proportional to distance and bulk. Because of refrigeration and air-conditioning techniques, perishable commodities can be carried long distance. Agricultural produce is processed before shipment. These new development help to satisfy fully the changing tastes of the modern city dweller, who demands a more varied and exotic diet.
Human organization Modern organization favours large scale production and mass transportation of agricultural produce. As a result, physical or other advantages of distant, specialized regions have become more important than in the past. For this same reason, there is rarely such a thing as a single local market, but rather a nationwide or worldwide market.
Living habit In many advanced developed parts of the world, the basic forces determining agricultural land use near urban areas are associated with urban expansion with population growth and constantly expanding areas of urban land use. Although urban expansion is uneven and in many ways chaotic, there is evidence that it creates an agricultural pattern quite often is one of increasing intensity, opposite to von Thunen’s theory.
Distance from city Value of agriculture OPQR From O-P, agricultural value is 0. From P-Q, agricultural value increases as the distance increases. From Q onward, agricultural value keeps constant.
From O-P, urban expansion has resulted in the replacement of agricultural land by urban uses. The locational rent of urban uses are much higher than farming use. Agriculture has been outbid by urban land uses. Agricultural value thus is zero. At the margin of O-P, replacement does not take place yet, but will sooner do. Existing farmland may lie idle waiting for speculation.
From P-Q, immediate urban expansion does not occur in the meanwhile. But sooner or later, the land will be replaced by urban uses. It is not justifiable for farmers to invest too much on their farms. The land still can bring income if it is used for extensive grazing or growing of field crops. The further away from the city, the weaker is the influence of urban expansion. Thus value of agriculture increases slowly with distance from city.
Beyond Q, the influence of urban expansion ceases. The most economical way of using the land is farming. It is also justifiable to invest much on the land. Agricultural value is high. The flat curve indicates that farming potential is not so controlled by physical distance.
Distance from city Value of agriculture
Ring 1- Urban Farming At the urban edges, land is either changing to urban use, being subdivided, or held by speculators. Here urban farming, a hodgepodge of small producing units, is scattered. These are poultry-keeping, greenhouses, or mushroom- raising which often take place in building or multi-storeyed buildings. Such activities do not correspond to the market-gardening or dairying as suggested by Von Thunen. They are farm factories and are really industrial forms of land use, though destined for early disappearance.
Ring 2 - Vacant and grazing It is mainly a zone of vacant land or land of temporary grazing. Where farmers leave much land empty to sell to speculators at the most lucrative moment, and only allow grazing under short-term lease, i.e. any activities are short-lived and extensive.
Ring 3-Field crop and grazing It is a field crop and grazing zone. It is an area of transitional agriculture, where farming is carried on. Farmers do not wish to invest capital. Hired labour is expensive. It is more profitable to find jobs in city than to work on farms. Farming, therefore, tends to be extensive.
Ring 4-Dairying and field crop It is a broad zone of dairying and field crops. The zone is outside the price mechanism of the city in terms of land use being influenced by anticipated urbanization. It is within the city’s influence in a marketing sense because it constitutes the major part of fresh milkshed of the metropolitan area.
Ring 5-Specialized feed grain livestock It is a zone of specialized feed-grain livestock (e.g. the Corn Belt). The economy of the farms is not under the direct influence of the metropolitan area. It continues to serve, and be influenced by a national market.
Evaluation on Sinclair’s Model dynamic Scale urban as a market institutional factors behavioural factors
Intensity of Land use Distance from Urban Intensity of Land use Distance from Urban Von Thunen Sinclair
Intensity of Land use Distance from Urban HONG KONG
Market town Market gardening Paddy Field crops Hong Kong 1950s & 1960s
New town expansion Expansion of market gardening Abandonment due to poor accessibility Abandonment due to anticipation of urban encroachment