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The 1996 Federal Agriculture Improvement and Reform Act: Correcting a Distortion?

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  • Key, Nigel D.
  • Lubowski, Ruben N.
  • Roberts, Michael J.

Abstract

This study makes use of farm-level data from the Agricultural Census to evaluate the effects of the 1996 Federal Agriculture Improvement and Reform (FAIR) Act, which intended to “"decouple"” commodity payments from production decisions. Prior to this Act, agricultural support payments were linked to production decisions via prices and a complex set of restrictions that acted to control the supply of agricultural commodities. We compare farm-level 1992-to-1997 changes in commodity crop plantings of farms that participated in government programs with farms that did not participate. We find that the growth rate of program-crop acreage of non-participants was 19 percentage points below that of participants. This estimated difference remains unchanged after we account for unobserved effects relating to farm size, type, location, and interactions of these factors using over 1900 fixed-effects variables. These results may imply that program participation rules associated with pre-1996 programs effectively acted to limit program acreage in 1992. An alternative explanation is that payments associated with decoupled programs instituted with the 1996 Act were in fact distortionary and induced farmers to produce more than they would have without the payments. Additional research would be needed to test these competing theories.

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File URL: http://purl.umn.edu/20128
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Bibliographic Info

Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2004 Annual meeting, August 1-4, Denver, CO with number 20128.

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Date of creation: 2004
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Handle: RePEc:ags:aaea04:20128

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Keywords: Agricultural and Food Policy;

References

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  1. Joseph G. Altonji & Todd E. Elder & Christopher R. Taber, 2000. "Selection on Observed and Unobserved Variables: Assessing the Effectiveness of Catholic Schools," NBER Working Papers 7831, National Bureau of Economic Research, Inc.
  2. Jeffrey D. McDonald & Daniel A. Sumner, 2003. "The Influence of Commodity Programs on Acreage Response to Market Price: With an Illustration Concerning Rice Policy in the United States," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(4), pages 857-871.
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Cited by:
  1. Kim, Tae-Hun, 2008. "Effect of Decoupled Payments on U.S. Agricultural Production," Journal of Rural Development/Nongchon-Gyeongje, Korea Rural Economic Institute, vol. 31(5), November.
  2. Beckman, Jayson F. & Wailes, Eric J., 2005. "The supply response of U.S. rice: how decoupled are income payments?," 2005 Annual meeting, July 24-27, Providence, RI 19247, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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