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Decoupled Farm Payments and the Role of Base Acreage and Yield Updating Under Uncertainty

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  • Bhaskar, Arathi
  • Beghin, John C.

Abstract

In the context of U.S. farm policy, this paper analyzes the effect that expectations about base acreage and yield updating in future policies have on a farmer's production decisions in the presence of price, yield and policy uncertainty. We consider a risk averse farmer producing a single crop whose income consists of market revenue and government payments. We consider two policy regimes. Decisions on acreage and fertilizer use made in the current policy regime are linked to government payments in the future policy regime through the possibility of a base acreage and yield update in the future regime. There is policy uncertainty about the possibility of the updates being allowed in the future. We combine stochastic dynamic programming with present value calculations to link current acreage and input use decisions to future program payments. The average optimal planted acreage and fertilizer use are increasing in the subjective probability of the future update. The estimated maximum percentage increase in the average optimal planted acreage is 6.25%. The estimated maximum percentage increase in the average yield, resulting from optimal fertilizer use is much smaller at 0.134%.

Suggested Citation

  • Bhaskar, Arathi & Beghin, John C., 2007. "Decoupled Farm Payments and the Role of Base Acreage and Yield Updating Under Uncertainty," Staff General Research Papers Archive 12851, Iowa State University, Department of Economics.
  • Handle: RePEc:isu:genres:12851
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    1. Bhaskar, Arathi & Beghin, John C., 2009. "How Coupled Are Decoupled Farm Payments? A Review of the Evidence," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 0(Number 1), pages 1-24, April.
    2. Mitchell, Paul D. & Rejesus, Roderick M. & Coble, Keith H. & Knight, Thomas O., 2011. "Analyzing Farmer Participation Intentions and Enrollment Rates for the Average Crop Revenue Election (ACRE) Program," Staff Papers 116705, University of Wisconsin-Madison, Department of Agricultural and Applied Economics.
    3. Jerzy Michalek & Pavel Ciaian & d’Artis Kancs, 2014. "Capitalization of the Single Payment Scheme into Land Value: Generalized Propensity Score Evidence from the European Union," Land Economics, University of Wisconsin Press, vol. 90(2), pages 260-289.
    4. Mitchell, Paul D. & Rejesus, Roderick M. & Coble, Keith H. & Knight, Thomas O., 2010. "A Real Options Framework for Analyzing Program Participation as Human Capital Investments: The Case of the Average Crop Revenue Election (ACRE) Program," Staff Papers 92896, University of Wisconsin-Madison, Department of Agricultural and Applied Economics.
    5. Kropp, Jaclyn, 2015. "Potential Distortionary Effects of Relocating Generic Base Acres," 2015 Annual Meeting, January 31-February 3, 2015, Atlanta, Georgia 196855, Southern Agricultural Economics Association.
    6. Kropp, Jaclyn D. & Peckham, Janet G., 2012. "Impacts of U.S. Agricultural and Ethanol Policies on Farmland Values and Rental Rates," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124579, Agricultural and Applied Economics Association.
    7. Carpentier, Alain & Gohin, Alexandre & Heinzel, Christoph, 2012. "Production Effects of Direct Payments to Active Farmers: a Microeconomic Dynamic and Stochastic Analysis," 123rd Seminar, February 23-24, 2012, Dublin, Ireland 122447, European Association of Agricultural Economists.
    8. Just, David R. & Kropp, Jaclyn D., 2009. "Production Incentives from Static Decoupling: Entry, Exit and Use Exclusion Restrictions," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49158, Agricultural and Applied Economics Association.
    9. Rizov, Marian & Pokrivcak, Jan & Ciaian, Pavel, 2013. "CAP Subsidies and the Productivity of EU Farms," Factor Markets Working Papers 148, Centre for European Policy Studies.
    10. Marian Rizov & Jan Pokrivcak & Pavel Ciaian, 2013. "CAP Subsidies and Productivity of the EU Farms," Journal of Agricultural Economics, Wiley Blackwell, vol. 64(3), pages 537-557, September.
    11. Czekaj, Stefania & Czubak, Wawrzyniec & Góral, Justyna & Majewski, Edward & Poczta, Walenty & Sadowski, Arkadiusz & Wąs, Adam, 2014. "Direct payments and budget subsidies versus finance and functioning of holdings and agricultural enterprises," Multiannual Program Reports 207399, Institute of Agricultural and Food Economics - National Research Institute (IAFE-NRI).
    12. Kropp, Jaclyn D. & Whitaker, James B., 2009. "The Impact of Decoupled Payments on the Cost of Operating Capital," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49311, Agricultural and Applied Economics Association.
    13. Jaclyn D. Kropp & Ani L. Katchova, 2011. "The effects of direct payments on liquidity and repayment capacity of beginning farmers," Agricultural Finance Review, Emerald Group Publishing, vol. 71(3), pages 347-365, November.
    14. Jaclyn D. Kropp & James B. Whitaker, 2011. "The impact of decoupled payments on the cost of operating capital," Agricultural Finance Review, Emerald Group Publishing, vol. 71(1), pages 25-40, May.
    15. Voica, Daniel C., 2014. "Are Subsidies Decoupled from Production in the Presence of Incomplete Financial Markets?," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 169788, Agricultural and Applied Economics Association.
    16. Mark, Tyler B. & Detre, Joshua & D'Antoni, Jeremy & Mishra, Ashok, 2012. "Factors Influencing Farm Operator Expectations on Future Levels of Government Support," Journal of the ASFMRA, American Society of Farm Managers and Rural Appraisers, vol. 2012, pages 1-17.
    17. Mary, Sebastien & Santini, Fabien & Boulanger, Pierre, 2013. "An Ex-Ante Assessment of CAP Income Stabilisation Payments using a Farm Household Model," 87th Annual Conference, April 8-10, 2013, Warwick University, Coventry, UK 158860, Agricultural Economics Society.
    18. Moro, Daniele & Sckokai, Paolo, 2013. "The impact of decoupled payments on farm choices: Conceptual and methodological challenges," Food Policy, Elsevier, vol. 41(C), pages 28-38.
    19. Demirdöğen, Alper & Olhan, Emine & Chavas, Jean-Paul, 2016. "Food vs. fiber: An analysis of agricultural support policy in Turkey," Food Policy, Elsevier, vol. 61(C), pages 1-8.
    20. Peckham, Janet G. & Kropp, Jaclyn D., 2012. "Decoupled Direct Payments under Base Acreage and Yield Updating Uncertainty: An Investigation of Agricultural Chemical Use," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 0(Number 2), pages 1-17, August.
    21. Mary, Sebastien & Mishra, Ashok K. & Paloma, Sergio Gomez y, 2013. "An impact assessment of EU's CAP income stabilisation payments," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 149691, Agricultural and Applied Economics Association.

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