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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.

Suggested Citation

  • Girante, Maria Joana & Goodwin, Barry K. & Featherstone, Allen M., 2008. "Farmers' Crop Acreage Decisions in the Presence of Credit Constraints: Do Decoupled Payments Matter?," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6335, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  • Handle: RePEc:ags:aaea08:6335
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    References listed on IDEAS

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    1. 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.
    2. Stéphane Blancard & Jean-Philippe Boussemart & Walter Briec & Kristiaan Kerstens, 2006. "Short- and Long-Run Credit Constraints in French Agriculture: A Directional Distance Function Framework Using Expenditure-Constrained Profit Functions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(2), pages 351-364.
    3. 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. 0(Number 1), pages 1-24, April.
    4. 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.
    5. David A. Hennessy, 1998. "The Production Effects of Agricultural Income Support Policies under Uncertainty," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(1), pages 46-57.
    6. 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).
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    8. Chavas, Jean-Paul & Holt, Matthew T., 1990. "Acreage Decisions Under Risk: The Case of Corn and Soybeans," 1990 Quantifying Long Run Agricultural Risks and Evaluating Farmer Responses to Risk Meeting, January 28-31, 1990, Sanibel Island, Florida 271540, Regional Research Projects > S-232: Quantifying Long Run Agricultural Risks and Evaluating Farmer Responses to Risk.
    9. 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.
    10. Bhaskar, Arathi & Beghin, John C., 2007. "How Coupled are Decoupled Farm Payments? A Review of Coupling Mechanisms and the Evidence," Working Papers 7347, Iowa State University, Department of Economics.
    11. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August.
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    Cited by:

    1. Sabasi, Darlington & Kompaniyets, Lyudmyla, 2015. "Impact of credit constraints on profitability and productivity in U.S. agriculture," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205689, Agricultural and Applied Economics Association.
    2. 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.
    3. Anthony Becker & Rebecca Judge, 2014. "Evidence of Distortionary Effects of Decoupled Payments in U.S. Indica Rice Production," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 42(3), pages 265-275, September.
    4. Demirdöğen, Alper & Olhan, Emine & Chavas, Jean-Paul, 2016. "Food vs. fiber: An analysis of agricultural support policy in Turkey," Food Policy, Elsevier, vol. 61(C), pages 1-8.

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    Agricultural Finance;

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