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Do Counter-Cyclical Payments In The Fsri Act Create Incentives To Produce?

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  • Anton, Jesus
  • Le Mouel, Chantal

Abstract

Analytical results in the literature suggest that counter-cyclical payments create risk-related incentives to produce even if they were "decoupled" under certainty (Hennessy, 1998). This paper develops a framework to assess the risk-related incentives to produce created by commodity programmes like the loan deficiency payments and the Counter-Cyclical Payments (CCP) in the FSRI Act. Because CCP are paid based on fixed production quantities they have a weaker risk-reducing impact than loan deficiency payments. The latter have a direct impact through the variance of the producer price distributions, while the impact of CCP is due only to the covariance between the CCP and the producer price distributions. The methodology developed by Chavas and Holt (1990) is applied to calculate the appropriate variance-covariance matrix of the truncated producer price distributions created by the FSRI in 2002. Risk premiums are computed showing that the risk related incentives created by CCP are significant and they do not disappear for levels of production that are larger than the base production on which they are paid.

Suggested Citation

  • Anton, Jesus & Le Mouel, Chantal, 2003. "Do Counter-Cyclical Payments In The Fsri Act Create Incentives To Produce?," 2003 Annual Meeting, August 16-22, 2003, Durban, South Africa 25811, International Association of Agricultural Economists.
    • Handle: RePEc:ags:iaae03:25811
    DOI: 10.22004/ag.econ.25811
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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. Lence, Sergio H., 2000. "Using Consumption and Asset Return Data to Estimate Farmersï¾’ Time Preferences and Risk Attitudes," Staff General Research Papers Archive 1930, Iowa State University, Department of Economics.
    3. H. Alan Love & Steven T. Buccola, 1991. "Joint Risk Preference-Technology Estimation with a Primal System," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 73(3), pages 765-774.
    4. Jean-Paul Chavas & Matthew T. Holt, 1990. "Acreage Decisions Under Risk: The Case of Corn and Soybeans," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 72(3), pages 529-538.
    5. Barry T. Coyle, 1999. "Risk Aversion and Yield Uncertainty in Duality Models of Production: A Mean-Variance Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(3), pages 553-567.
    6. Sergio H. Lence, 2000. "Using Consumption and Asset Return Data to Estimate Farmers' Time Preferences and Risk Attitudes," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(4), pages 934-947.
    7. Barry T. Coyle, 1992. "Risk Aversion and Price Risk in Duality Models of Production: A Linear Mean-Variance Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 74(4), pages 849-859.
    8. Chavas, Jean-Paul & Holt, Matthew T, 1996. "Economic Behavior under Uncertainty: A Joint Analysis of Risk Preferences and Technology," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 329-335, May.
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    Cited by:

    1. Jean-Christophe J.-C. Bureau & Alexandre Gohin & Sébastien Jean, 2007. "The CAP and WTO negotiation [La PAC et la négociation OMC]," Post-Print hal-02821142, HAL.
    2. Martini, Roger & Anton, Jesús & Dewbre, Joe, 2005. "Policy Changes and Modelling Challenges: Insights from PEM Analysis," 89th Seminar, February 2-5, 2005, Parma, Italy 234615, European Association of Agricultural Economists.
    3. Beckman, Jayson F. & Wailes, Eric J., 2005. "The supply response of U.S. rice: how decoupled are income payments?," 2005 Annual meeting, July 24-27, Providence, RI 19247, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    4. Makki, Shiva S. & Johnson, D. Demcey & Somwaru, Agapi, 2005. "Farm Level Effects of Counter-Cyclical Payments," 2005 Annual meeting, July 24-27, Providence, RI 19508, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    5. repec:dau:papers:123456789/1735 is not listed on IDEAS

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