Von Thunen

Some Assumptions made by farmers on what they are going to farm:

• A farmer is worried about two costs: 1. …and 2. … (of course the farmer is worried about other things such has yield and climate and disease)

• … a farmer will grow a crop that will sell for more than the land costs

• …Also considered is the distance to the market

• Farms that are located closer to their market tend to select crops with higher transportation costs per hectare of output, whereas more distant farms are more likely to select crops that can be transported less expensively.

A key element of competition and cost is - proximity to the market.

Why does proximity matter:

• …direct costs of transport

• …perishability

• …risk of damage

• …technology can alter the equation

•…good agricultural land is is good for different uses

Below is a simple scenario on how land will look like depending on what is grown and assuming the Market is at the geographic center. This is the theory developed by Von Thunen.

The Scenario below shows how a river can change the pattern.

Von Thünen Model

Von Thünen’s model shows how distance from a city or market affects the choice of agricultural activity in (a) a uniform landscape and (b) one with a river.

How Geography can change the agricultural pattern

Von Thunen and Rent

• Economic Rent = (simple) depends on prices and cost of output:

A. How much does it cost to make or grow and B. How much should I sell it for?

Location Rent = A. How much have I made,B. how much is it going to cost to get it to market (freight and distance cost), C. therefore how much should I sell it for.

Von Thunen’s model was also incorporated into the concept of how rent can be determined for land.

Bid Rent is a geographical economic theory that refers to how the price and demand on real estate changes as the distance towards the CBD increases.

…

This theory is based upon the reasoning that the more accessible an area, the more profitable it is going to be. When the cost gets too high certain land uses drop out.

Von Thunen and Agricultural location

Look over these next few illustrations and see if you can understand them!

Real World Modifications:

• land is not uniformm – mts, rivers

• climate is not uniform

• soil and vegetation is not uniformm

• countries level of development

• foal costs

•Government Policies – eg. - Crow Rates (straight line) – Government subsidy to try and reduce transportation costs - discounts, build better and faster transportation networks etc.

• Overall government subsidies to control output and cost. To help farmers in hard economic times – eg. Tobacco farmers in Ontario.

The End!