Evaluating USDA’s Baseline Projections

Agricultural baselines play an important role in shaping agricultural policy, yet there are few studies evaluating these projections. This study evaluates the accuracy and informativeness of two widely used baselines for the US farm sector published by the United States Department of Agriculture (USDA) and the Food and Agricultural Policy Research Institute (FAPRI). First, we examine the average percent errors of the projections and perform tests of bias. Second, we use a novel testing framework based on the encompassing principle to test the predictive content of the projections for each horizon (year), determining the longest informative projection horizon. Third, we compare the USDA and FAPRI baseline projections using a multi-horizon framework that considers all projection horizons together. We find that prediction error and bias increase with the horizon's length. The predictive content of the baselines projections for most variables diminishes after 4-5 years from the current year. The multi-horizon comparison suggests that neither the USDA nor the FAPRI projection has uniform or average superior predictive ability over the other projection. Our findings are useful for the agencies producing these baselines, and policymakers, agricultural businesses, and other stakeholders who use them.