Farmland Prices and the Farming Industry’s Profitability in Australia

Research by: Hassan F. Gholipour, Mohammad Reza Farzanegan, Amir Arjomandi, Sharon Yam & Florian Gerth

Executive Summary

This study investigates the relationship between farmland prices and the farming industry’s profitability in Australia from 1992 to 2022. Using a vector autoregression (VAR) model, the authors analyze both national and state-level data to explore how profitability shocks influence farmland prices and how rising land values, in turn, affect production costs and farm returns. The research finds that farmland prices respond positively to profitability shocks, although with a lag of 2–5 years depending on the state. Conversely, increases in farmland prices indirectly reduce profitability by raising costs such as taxes, insurance, and loan repayments.

At the national level, profitability shocks explain a growing share of farmland price movements over time, while farmland prices themselves have little impact on profitability in the short term. Rising land values are shown to significantly increase production costs, which erodes farm profits, although current landowners may benefit by leveraging their property as collateral for better financing conditions. State-level analyses largely mirror the national findings, though Queensland stands out as an exception, with profitability showing little effect on farmland values—likely due to the state’s vulnerability to extreme weather events deterring investment.

The findings carry important implications for policymakers, farmers, and investors. While rising land values reflect strong agricultural performance and investor interest, they also create barriers for new entrants, risk rural displacement, and intensify cost pressures on operating farmers. For policymakers, the results highlight the need to balance farmland market dynamics with long-term sector sustainability. For investors, the insights emphasize regional differences, the impact of interest rates, and the importance of climate risks in shaping farmland value trajectories.

Key Findings

1. Profitability drives farmland prices with a lag: Shocks to farm profitability increase farmland values nationally and across most states after 2–5 years.
2. Rising land values indirectly erode profitability: Higher farmland prices raise production costs (e.g., taxes, insurance, borrowing costs), diminishing returns despite some benefits for existing landowners.
3. Regional and climate factors matter: Queensland diverges from national trends due to extreme weather risks, illustrating that profitability alone cannot explain farmland price dynamics.

To cite this article: Gholipour, H. F., Farzanegan, M. R., Arjomandi, A., Yam, S., & Gerth, F. (2025). Farmland prices and the farming industry’s profitability in Australia. Applied Economics, 1–12. https://doi.org/10.1080/00036846.2025.2547112

To access the article: https://doi.org/10.1080/00036846.2025.2547112

About the Journal

This publication was featured in the Australian newspaper “The Conversation”:

https://theconversation.com/australian-farmland-values-are-at-lofty-heights-research-reveals-this-could-be-hurting-some-farmers-263180?utm_medium=article_native_share&utm_source=theconversation.com