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Alternative Farm Bills: Impacts on Minnesota Farms

Listed author(s):
  • Olson, Kent D.
  • DalSanto, Matthew R.

With the current federal farm bill set to expire at the end of September this year, many proposals have been made to redesign the next bill. The objectives of this study are to compare the current policy with major proposed alternatives and estimate the potential payments of farmers under each of the alternatives. The alternative policies are compared in two ways. First a historical comparison of crop revenue and estimated government payments for individual farms are made under each proposal from 2002-2005. In a second comparison, projections of crop revenue and government payments are made using historical yields for each farm, county, and nation; historical price data; statistical distributions of the yields and prices including averages, standard deviations, and correlations; and each proposal's rules for calculating payments. For yields, deviations from the yield trend are used. In three of the four years and on average, the American Soybean Association (ASA) proposal has higher payments and thus higher total gross revenue compared to current policy and the other three proposals. Since the ASA proposal raises both loan rates and target prices, the higher payments should be expected. The proposed USDA policy is estimated to have a slightly higher average government payment and total gross revenue compared to current policy, but it is not higher than current policy in each year. Lower total payments under the National Corn Growers Association (NCGA) proposal are due to higher than average revenues during 2002-05. The revenue insurance proposal does not create any indemnity payments in 2002-05 again due to the higher revenues in these years. Projections of potential revenue also show the ASA proposal to have higher estimated payments. Average government payments are estimated to be slightly higher under current policy compared to USDA's and NCGA's proposals. Since federal budget concerns may not allow the higher payments under the ASA proposal, the choice between the USDA and NCGA proposal may hinge on the level of administrative costs which would appear to be lower with the USDA proposal since it is based on one national estimate of revenue versus many county and individual calculations under the NCGA proposal. The potential use of multi-commodity revenue insurance will hinge on either the ability to provide additional support in fixed direct payments and green payments and larger federal budget concerns.

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Paper provided by University of Minnesota, Department of Applied Economics in its series Staff Papers with number 7315.

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Date of creation: 2007
Handle: RePEc:ags:umaesp:7315
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