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The Impact of Decoupled Payments on the Cost of Operating Capital

  • Kropp, Jaclyn D.
  • Whitaker, James B.
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    We estimate the impact of direct payments under the 2002 Farm Act on the credit terms of farm operators, specifically the interest rate on short-term operating loans. In the analysis, we control for farm financial characteristic, farm operator characteristics, and other factors. Using data from the Agricultural Resource Management Survey (ARMS) for the year 2007, we show that as the proportion of base acres to total operated acres increases, interest rates decline by a small but statistically significant amount. This implies that direct payments lead to lower operating costs through better credit terms. Lower operating costs may in turn allow some farmers to produce on land that would otherwise be unprofitable to operate.

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    Paper provided by Agricultural and Applied Economics Association in its series 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin with number 49311.

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    Date of creation: 2009
    Date of revision:
    Handle: RePEc:ags:aaea09:49311
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    1. Baltensperger, Ernst, 1978. "Credit Rationing: Issues and Questions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 10(2), pages 170-83, May.
    2. Jaffee, Dwight & Stiglitz, Joseph, 1990. "Credit rationing," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 2, chapter 16, pages 837-888 Elsevier.
    3. Rucker, Randal R & Thurman, Walter N & Sumner, Daniel A, 1995. "Restricting the Market for Quota: An Analysis of Tobacco Production Rights with Corroboration from Congressional Testimony," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 142-75, February.
    4. 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.
    5. Daniel A. Sumner & Christopher A. Wolf, 1996. "Quotas without Supply Control: Effects of Dairy Quota Policy in California," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(2), pages 354-366.
    6. Lence, Sergio H. & Mishra, Ashok K., 2003. "The Impacts of Different Farm Programs on Cash Rents," Staff General Research Papers 11470, Iowa State University, Department of Economics.
    7. Chau, Nancy H. & de Gorter, Harry, 2001. "Disentandling the Consequences of Direct Payment Schemes in Agriculture on Fixed Costs, Exit Decisions and Output," Working Papers 127663, Cornell University, Department of Applied Economics and Management.
    8. Bhaskar, Arathi & Beghin, John C., 2007. "Decoupled Farm Payments and the Role of Base Acreage and Yield Updating Under Uncertainty," Staff General Research Papers 12851, Iowa State University, Department of Economics.
    9. Kirwan, Barrett E., 2008. "The Incidence of U.S. Agricultural Subsidies on Farmland Rental Rates," Working Papers 42714, University of Maryland, Department of Agricultural and Resource Economics.
    10. 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.
    11. Harry de Gorter & David R. Just & Jaclyn D. Kropp, 2008. "Cross-subsidization Due to Inframarginal Support in Agriculture: A General Theory and Empirical Evidence," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 90(1), pages 42-54.
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