The Regional Distribution of Farm-Level Impacts from Acreage Set-Asides

The question of whether the United States should once again authorize acreage setasides will be addressed now that Congress has decided to hold hearings about a possible early rewrite of farm policy. Questions about the impact of acreage set-asides on farm income and national policy goals will need to be answered. This paper takes an initial look at three pertinent questions: (1) What impact will acreage set-asides have on the prices of corn, soybeans, and wheat? (2) What would be the differential farm-level impacts of set-asides across regions? And (3) How might acreage controls work with existing marketing loans? A 10 percent reduction in corn, soybeans, and wheat would significantly raise prices in a one-year time frame. Over a three-year period, production in other countries would increase, and processors and livestock feeders would adjust their demands, so the price impact would be much less significant. Thus the major benefits from a permanent reduction in supply would be relatively short-lived and not shared equally across crops. For example, soybean producers would benefit much less than corn producers because the soybean buyers have a greater ability to find alternative supplies and ingredients than do corn buyers. The attractiveness of supply control programs, either voluntary or mandatory, also would not be equal across farmers of the same crop in different production regions. Those producers that reside in areas that have low per-acre land rents relative to per-acre crop revenue would receive a disproportionate share of program benefits. Corn Belt farmers with their high cash rents and high per-acre yields should be much less enthusiastic about a program that ties payments to land set-asides than irrigated corn farmers in Oklahoma with relatively high yields, high costs, and low land rents. Supply control would have to increase prices above loan rates before any farmer would see a benefit if marketing loans were continued. Thus, maintaining current eligibility requirements for marketing loans would make the attractiveness of voluntary set-asides quite low. Some additional inducement, such as a higher loan rate for participating farmers, would have to be enacted before a voluntary program would become feasible. Set-aside programs would tend to target subsidies and would tend to reduce production in regions that would otherwise go out of production first when prices were low. One possible justification for this type of program would be to counteract the acreage-expanding impacts of the U.S. marketing loan and crop insurance programs.