Agricultural Policy and Financial Stress

Many farmers are currently facing severe financial stress resulting in asset liquidations, problems in obtaining credit, and even bankruptcy. An important question in policy analysis is the applicability of traditional farm policy approaches to the problem of financial stress in agriculture. This is a particularly relevant question given that the 1983 PIK program was one of the most expensive and largest government transfer programs for agriculture in recent history, and yet many farms are still facing severe financial problems. In this discussion the causes of current financial stress in agriculture and the role of past price and income support, credit and tax policies in mitigating or contributing to this stress will be assessed. Then alternative policy options to relieve the stress will be identified and evaluated. Selected options will be quantitatively analyzed using micro and macro econometric simulation models. Finally, conclusions will be drawn.