Economic Impacts of Farm Program Payment Limits

The high levels of government payments to farmers resulting from the 1985 farm bill have once again led the Congress to examine the payment limit issue. Payment limits were initially established in 1970 and have since been revised several times. In this report, policy and farm management economists analyze the consequences of alternative payment limits on economic efficiency, economic viability of family-size farms, international competitiveness, and consumer food costs. Effective payment limits encourage reduced farm size and in the presence of economies of size, tend to increase production costs for program crops. The Agricultural and Food Policy Center is charged with evaluating economic impacts of policy alternatives -- not recommending, advocating, or opposing particular policies. The Center's orientation is toward Texas agriculture -- evaluating policy impacts on its producers and consumers. Farm prices and income, however, are determined in world markets that are influenced by national economic policy and farm programs. Texas impacts, therefore, must be evaluated in a much broader national and international market and policy context.