What Is Driving Farmland Rental Prices in Sub-saharan Africa? Evidence from Malawi

Informal land markets, particularly land rental markets, are emerging rapidly in many parts of subSaharan Africa (SSA). Land rental markets have the potential to contribute to structural transformation if, for example, such markets facilitate the transfer of land from less productive to more productive farming households. Although there is a growing literature on the determinants of smallholder farm households’ decisions to participate in land rental markets, relatively little is known about the factors driving land rental prices in SSA. This study aims to fill that gap using panel data from Malawi to estimate the effects of various plot-level characteristics and economic variables on plot-level land rental prices. Of particular interest is the effect of Malawi’s Farm Input Subsidy Program (FISP) on land rental prices, as evidence from the US suggests that part of the value of agricultural subsidies is often capitalized in land rental prices. Our results suggest that FISP has no substantive effect on land rental prices, perhaps because FISP’s effects on maize productivity have been modest. Expected crop prices, soil quality, and market access are more important determinants of land rental prices in Malawi; increases in these variables are associated with higher average rental prices, ceteris paribus.