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Farmers' Crop Acreage Decisions in the Presence of Credit Constraints: Do Decoupled Payments Matter?

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  • Girante, Maria Joana
  • Goodwin, Barry K.
  • Featherstone, Allen M.

Abstract

While in theory decoupled payments do not distort production decisions, in practice there are several potential coupling mechanisms for these payments. We use farm-level data from Kansas to revisit the issue of how (de)coupled are these supposedly “decoupled” payments by focusing on how they may impact production through credit constraints. In particular, we study how production effects may have differed across farmers with varying levels of debt pressure. Our empirical approach exploits the fact that we can observe the same farm over time (and so can account for the effects of time-constant omitted variables) to study how these payments affected total crop acres, owned acres, and the decisions to plant corn, sorghum, soybeans and wheat. Like previous studies, we find small production effects. Nonetheless our results suggest decoupled payments have potentially distortionary effects on production.

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Bibliographic Info

Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida with number 6335.

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Date of creation: 2008
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Handle: RePEc:ags:aaea08:6335

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Keywords: decoupled payments; credit constraints; Agricultural Finance; Q17; Q18;

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  1. Roe, Terry & Somwaru, Agapi & Diao, Xinshen, 2002. "Do direct payments have intertemporal effects on U.S. agriculture?," TMD discussion papers 104, International Food Policy Research Institute (IFPRI).
  2. Stéphane Blancard & Jean-Philippe Boussemart & Walter Briec & Kristiaan Kerstens, 2005. "Short- and Long-Run Credit Constraints in French Agriculture: A Directional Distance Function Framework Using Expenditure-Constrained Profit Functions," Working Papers 2005-ECO-02, IESEG School of Management.
  3. Serra, Teresa & Zilberman, David & Goodwin, Barry K. & Featherstone, Allen M., 2005. "Decoupling farm policies: how does this affect production?," 2005 Annual meeting, July 24-27, Providence, RI 19194, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  4. Hennessy, David A., 1998. "The Production Effects of Agricultural Income Support Policies Under Uncertainty," Staff General Research Papers 1207, Iowa State University, Department of Economics.
  5. Bhaskar, Arathi & Beghin, John C., 2009. "How Coupled Are Decoupled Farm Payments? A Review of the Evidence," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 34(1), April.
  6. Nigel Key & Michael J. Roberts, 2006. "Government Payments and Farm Business Survival," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(2), pages 382-392.
  7. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August.
  8. Teresa Serra & David Zilberman & Barry K. Goodwin & Allen Featherstone, 2006. "Effects of decoupling on the mean and variability of output," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 33(3), pages 269-288, September.
  9. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  10. Barry K. Goodwin & Ashok K. Mishra, 2006. "Are “Decoupled” Farm Program Payments Really Decoupled? An Empirical Evaluation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(1), pages 73-89.
  11. Joe Dewbre, 2006. "The Impact of Coupled and Decoupled Government Subsidies on Off-Farm Labor Participation of U.S. Farm Operators," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(2), pages 393-408.
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Cited by:
  1. Anthony D. Becker & Rebecca P. Judge, 2012. "Measuring the Effects of Decoupled Payments on Indica Rice Production Under the 1996 and 2002 Farm Bills," Working Papers 201201, St. Olaf College, Department of Economics.

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