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von Thünen’s Model Johann Heinrich von Thünen (1783-1850) Who was von Thünen? • German farmer and economist • 1826 wrote down his ideas • Noticed that one crop or commodity gave way to another as one moved away from the market (city) • Each market, or city, had its own “concentric rings” around it • Also noticed that farmers near the market produced very different things than farmers far from the market Assumptions of the model • The market is a central Isolated State • The Isolated State is surrounded by forest • The terrain is homogeneous, flat, isotropic plane and has no rivers or mountains. There are no barriers to transport for farmers to bring their goods to market • Soils and climate are even and consistent • Farmers behave rationally to maximize profits The classic model A “modernized” look Yet, another look http://www.csiss.org/classics/uploads/vonthunen2.jpg Main factors of v.T. • • • • Land rent or cost = Bid Rent Labor costs Transport costs (distance to market) Production costs The classic model again Modern usefulness of von Thünen: What has changed? • Refrigeration and freezing • Preservatives – vacuum packing, canning, chemical and natural preservatives • Modern transport systems – containers, trucks, ships, planes - flowers flown into NYC from the Caribbean • Factories/Agribusiness or Industrial Agriculture • Where do Farmer’s Markets fit into von Thünen? Even flowers are flown in The math of von Thünen • Locational rent, a term used by von Thünen in his argument, is to be understood as the equivalent to land value. It corresponds to the maximum amount a farmer could pay for using the land, without making losses. It can be defined as the equation below: L = Y(P − C) − YDF is... • L: Locational rent (in $/km2) • Y: Yield (in tons / km2) • P: Market price of the crop (in $ / t) • C: Production cost of the crop (in $ / t) • D: Distance from the market (in km) • F: Transport cost (in $ / t / km) L=Y(P-C)-YDF Solve Take the locational rent of a product with a yield of 1,000 t / km2, for example, with a fixed price of 100 $/t in the market. Production and transport costs are respectively, 50 $/t and 1 $/t/km. The locational rent is 50,000 $/km^(2) at the market, 40,000 $/km^(2) 10 km from the market and only 20,000 $/km^(2) 30 km from the market. Since locational rent falls with increasing distance from the market, the amount each farmer is willing to pay for agricultural land will shrink and the price of land will eventually decline. Basics of von Thünen • READ • The von Thünen model is focused on the role of transportation costs and the concept of bid rent. That is, agricultural practices that yield a high profit per acre can out bid those practices that are not as profitable. Thus, they are able to occupy the land more accessible to the city. Now, PIYOW. Basics of von Thünen • READ • Crops that yield a high per acre profit and have high transportation costs (because they are perishable or fragile) will locate close to the market (city). • The pattern of labor and capital-intensive market gardening around large cities exists in the United States and other parts of the world as well. • Now, PIYOW Basics of von Thünen • READ • The model assumes that all parts of the city's hinterland are exactly the same and so the model cannot account for practices such as the location of plantation agriculture which is defined as agriculture that produces a commercial crop in one environment for export to another environment. Basics of von Thünen • READ • The model assumes milk (as one example) is consumed fresh and is difficult to transport. Therefore, dairy farming should be close to the market. Contemporary technology allows fresh milk to be shipped long distances and large scale dairy farms are viewed as undesirable neighbors and so they are being located away from large urban populations. • Therefore, modern technology has made some of the model obsolete. • Now, PIYOW. Basics of von Thünen • READ • The model proposes that land uses that are more labor and capital intensive locate close to the market. • Ranching is not labor intensive and ranch land, rents or sells for much less per acre than agricultural land close to the market (city). • Now, PIYOW • • • • • • • is... L: Locational rent (in DM/) Y: Yield (in ) P: Market price of the crop (in ) C: Production cost of the crop (in ) D: Distance from the market (in ) F: Transport cost (in )