state total; in 1969 it was 10%. The real value of farms in Southwest Florida 

 rose about 81% ($717 million in 1969 to $1.3 billion in 1978; 1967 = 100). 

 The value of land is determined, as with most other commodities, by the inter- 

 action of supply and demand. Since the supply is relatively fixed in Florida, 

 demand usually determines the price. The demand, or multiple-use conflicts, 

 for land are urbanization, recreation, phosphate mining, industrialization, 

 and agriculture (U.S. Department of Commerce, Bureau of Census annual sum- 

 maries 1954-81). 



Land to the farmer is a capital asset that provides an annual income. It 

 draws its value from the prospect of cultivation and future sale. The value 

 of a farm is equal to the Net Present Value (NPV) of the future earnings from 

 cultivation. To the nonfarm user, land value is drawn from the development 

 potential, natural beauty, proximity to retail, commercial or service focal 

 points, and mineral deposits, to mention a few. The value to these users is 

 the net present value of the future earnings from farm and mineral products. 



If for any reason the costs are lowered or demand for the produce in- 

 creases, then the net present value increases. Population increases raise the 

 demand for land for both farm and nonfarm use; however, on urban fringes the 

 demand for nonfarm use of the land is usually greater. The value of land to 

 nonfarm users has risen more than the land of farm users, and the price of 

 land has risen as nonfarm users compete to purchase available land. At this 

 point the farmer would sell his land if the revenue from the sale exceeds the 

 net present value of further cultivation. 



For examining the economics of farming, a generalized farm production 

 function is used: Q = f(L, K, T, C, E) where the quantity of output (Q) is a 

 function of the inputs labor (L), capital (K), land (T), chemical and ferti- 

 lizers (C), and energy (E). There are many combinations of inputs which yield 

 a given level of output. The farmer usually will use the least-cost combina- 

 tion of inputs that yields a given level of output. The farmer also will 

 adjust the combination of inputs as their costs change or as the productivity 

 (technological change) of output changes (e.g., qualitatively more efficient 

 capital ). 



In Southwest Florida, the population has been growing faster than the 

 State average, and the demand for nonfarm land use has increased. As the pop- 

 ulation increases, there is need for more housing, recreation facilities, and 

 retail and commercial establishments. This not only raises the land value but 

 also the farmer's opportunity cost of holding land. The farmer will seek to 

 substitute other inputs as specified in the generalized farm production func- 

 tion for land to maintain a least-cost combination of inputs to produce the 

 same level of output. An index of prices paid annually by farmers for select- 

 ed input in 1975-79 is given in Table 10. Analysis of the data reveal that 

 real land values have increased 53.6%, whereas machinery prices increased 

 46.6%, wages increased 38%, and the real prices of fertilizers and chemicals 

 declined. Total input prices (excluding land value) rose only 37.2%. This 

 relative increase in the price of land over other inputs accounts for the sub- 

 stitution of inputs such as labor and machinery for land. These results are 

 consistent with the hypothesis that Florida farmers have substituted labor 

 capital and fertilizers for land as the price of land has risen relative to 

 other input prices. Adherence to this procedure has increased the unit pro- 

 ductivity of land in Southwest Florida. 



102 



