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ACRE: A Revenue-Based Alternative to Price-Based Commodity Payment Programs

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  • Cooper, Joseph C.

Abstract

This paper develops a stochastic model for estimating the probability density function of the Average Crop Revenue Election (ACRE), a revenue-based commodity support payment that is offered under the 2008 Farm Act as an alternative to the traditional suite of price-based commodity payments, that is, marketing loan benefits and counter-cyclical payments. We minimize the potential for miss-specification bias in the model by using nonparametric and semi-nonparametric approaches as specification checks in the model. Our simulation results show that adding ACRE revenue payments to gross revenue reduced the downside risk in revenue for corn, wheat, and soybean farmers in 2009 in the four locations examined, with reductions ranging from 4% to 25%. Integrating Federal crop insurance with ACRE lowered insurance premiums from 10% to 40%, depending on the crop and location. A utility maximization approach is used to assess potential moral hazard effects of ACRE, and suggest little potential impact on acreage in the Heartland.

Suggested Citation

  • Cooper, Joseph C., 2009. "ACRE: A Revenue-Based Alternative to Price-Based Commodity Payment Programs," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49180, Agricultural and Applied Economics Association.
  • Handle: RePEc:ags:aaea09:49180
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    File URL: http://purl.umn.edu/49180
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    References listed on IDEAS

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    1. 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.
    2. Anton, Jesus & Mouel, Chantal Le, 2004. "Do counter-cyclical payments in the 2002 US Farm Act create incentives to produce?," Agricultural Economics, Blackwell, vol. 31(2-3), pages 277-284, December.
    3. Cooper, Joseph C. & Langemeier, Michael R. & Schnitkey, Gary D. & Zulauf, Carl R., 2009. "Constructing Farm Level Yield Densities from Aggregated Data: Analysis and Comparison of Approaches," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49216, Agricultural and Applied Economics Association.
    4. Barry K. Goodwin, 2009. "Payment Limitations and Acreage Decisions under Risk Aversion: A Simulation Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(1), pages 19-41.
    5. Barry J. Barnett & Dmitry V. Vedenov, 2007. "Is There a Viable Market for Area-Based Crop Insurance?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(2), pages 508-519.
    6. Keith H. Coble & Robert Dismukes, 2008. "Distributional and Risk Reduction Effects of Commodity Revenue Program Design," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 30(3), pages 543-553.
    7. 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.
    8. Fenton, Victor M. & Gallant, A. Ronald, 1996. "Qualitative and asymptotic performance of SNP density estimators," Journal of Econometrics, Elsevier, vol. 74(1), pages 77-118, September.
    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. Langemeier, Michael R., 2005. "Comparison of 2002 Census and KFMA Farms," Staff Papers 117977, Kansas State University, Department of Agricultural Economics.
    11. I. N. Fisher & G. R. Hall, 1969. "Risk and Corporate Rates of Return," The Quarterly Journal of Economics, Oxford University Press, vol. 83(1), pages 79-92.
    12. Barry K. Goodwin & Alan P. Ker, 1998. "Nonparametric Estimation of Crop Yield Distributions: Implications for Rating Group-Risk Crop Insurance Contracts," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(1), pages 139-153.
    13. Paolo Sckokai & Daniele Moro, 2006. "Modeling the Reforms of the Common Agricultural Policy for Arable Crops under Uncertainty," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(1), pages 43-56.
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    Cited by:

    1. Mitchell, Paul D. & Rejesus, Roderick M. & Coble, Keith H. & Knight, Thomas O., 2011. "Analyzing Farmer Participation Intentions and Enrollment Rates for the Average Crop Revenue Election (ACRE) Program," Staff Paper Series 560, University of Wisconsin, Agricultural and Applied Economics.

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