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U.S. Farm Policy and the Volatility of Commodity Prices and Farm Revenue

  • Lence, Sergio H.
  • Hayes, Dermot J.

A dynamic three-commodity rational-expectations storage model is used to compare the impact of the Federal Agricultural Improvement and Reform (FAIR) Act of 1996 with a free-market policy, and with pre-FAIR policies. Results suggest that FAIR did not lead to significant increases in long-run price volatility or revenue volatility. The main impact of pre-FAIR, relative to the free-market regime, was to substitute government storage for private storage in a way that did little to support prices or to stabilize farm incomes. Results also indicate that U.S. grain market volatility in 1995ï¾–2000 was due to fundamental market forces and not to FAIR.

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File URL: http://www.econ.iastate.edu/sites/default/files/publications/papers/paper_1779.pdf
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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 1779.

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Date of creation: 01 May 2002
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Publication status: Published in American Journal of Agricultural Economics, May 2002, vol. 84 no. 2, pp. 335-351
Handle: RePEc:isu:genres:1779
Contact details of provider: Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page: http://www.econ.iastate.edu
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  1. Deaton, Angus & Laroque, Guy, 1996. "Competitive Storage and Commodity Price Dynamics," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 896-923, October.
  2. Williams,Jeffrey C. & Wright,Brian D., 1991. "Storage and Commodity Markets," Cambridge Books, Cambridge University Press, number 9780521326162.
  3. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
  4. Babcock, Bruce A. & Beghin, John C. & Fabiosa, Jacinto F. & de Cara, Stephane & Elobeid, Amani E. & Fang, Cheng & Fuller, Frank H. & Hart, Chad E. & Isik, Murat & Matthey, Holger & Saak, Alexander E. , 2002. "FAPRI 2002 World Agricultural Outlook," Staff Reports 32051, Food and Agricultural Policy Research Institute (FAPRI).
  5. Gisser, Micha, 1993. "Price Support, Acreage Controls, and Efficient Redistribution," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 584-611, August.
  6. repec:ias:cpaper:00-fsr1 is not listed on IDEAS
  7. Chambers, Marcus J & Bailey, Roy E, 1996. "A Theory of Commodity Price Fluctuations," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 924-57, October.
  8. Newbery, D M G & Stiglitz, J E, 1979. "The Theory of Commodity Price Stabilisation Rules: Welfare Impacts and Supply Responses," Economic Journal, Royal Economic Society, vol. 89(356), pages 799-817, December.
  9. Babcock, Bruce A. & Beghin, John C. & Mohanty, Samarendu & Fuller, Frank H. & Fabiosa, Jacinto F. & Kaus, Phillip J. & Fang, Cheng & Hart, Chad E. & Kovarik, Karen & Womack, Abner W. & Young, Robert E, 2000. "FAPRI 2000 U.S. Agricultural Outlook," Staff Reports 32054, Food and Agricultural Policy Research Institute (FAPRI).
  10. Wright, Brian D, 1979. "The Effects of Ideal Production Stabilization: A Welfare Analysis Under Rational Behavior," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 1011-33, October.
  11. Lansford, Vernon & Madison, Daniel & Thompson, Wyatt & Willott, Brian & Adams, Gary M. & Babcock, Bruce A. & Beghin, John C. & Mohanty, Samarendu & Fuller, Frank H. & Chaudhary, Sudhir & Fabiosa, Jaci, 1999. "FAPRI 1999 U.S. Agricultural Outlook," Staff Reports 32049, Food and Agricultural Policy Research Institute (FAPRI).
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