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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

Abstract

We analyze the coupling effect of expectations about base acreage and yield updating in future farm policy on production decisions in the presence of price, yield, and policy uncertainty for a risk-averse farmer producing a single crop. The farmer receives market revenue and government payments. Using stochastic dynamic programming, optimum decisions under present value calculations positively link current acreage and fertilizer decisions to future government payments through expected updates of base acreage and yield in the future regime. Moving from a zero probability of updating to a probability of one increases optimum acreage and yield by 6.25% and 0.134%, respectively.

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  • Bhaskar, Arathi & Beghin, John, 2010. "Decoupled Farm Payments and the Role of Base Acreage and Yield Updating Under Uncertainty," ISU General Staff Papers 201001010800001224, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genstf:201001010800001224
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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. 34(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. Abby Kelly & Kalyn T. Coatney & Xiaofei Li & Keith H. Coble, 2020. "Subsidy Incidence in the Presence of Bertrand Suppliers of Complementary Inputs: A U.S. Agricultural Example," Journal of Industry, Competition and Trade, Springer, vol. 20(3), pages 479-501, September.
    4. 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.
    5. 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.
    6. 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.
    7. 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.
    8. 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.
    9. 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.
    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. Thompson, Wyatt & Gerlt, Scott & Dewbre, Joe H. & Effland, Anne B., 2020. "Rescuing the Decoupling Literature from Incomparable Chaos," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304366, Agricultural and Applied Economics Association.
    14. Andreas Wagener & Juliane Zenker, 2021. "Decoupled but Not Neutral: The Effects of Counter‐Cyclical Cash Transfers on Investment and Incomes in Rural Thailand†," American Journal of Agricultural Economics, John Wiley & Sons, vol. 103(5), pages 1637-1660, October.
    15. Zhihua Xiao & Murray Fulton, 2018. "Underinvestment in Producer†Funded Agricultural R&D: The Role of the Horizon Problem," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 66(1), pages 55-86, March.
    16. 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 Limited, vol. 71(3), pages 347-365, November.
    17. Jaclyn D. Kropp & James B. Whitaker, 2011. "The impact of decoupled payments on the cost of operating capital," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 71(1), pages 25-40, May.
    18. 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.
    19. 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.
    20. Coppess, Jonathan, . "Farm Bill 2023: Planted Acres and Additional Pieces of the Base Acres Puzzle," farmdoc daily, University of Illinois at Urbana-Champaign, Department of Agricultural and Consumer Economics, vol. 13(143).
    21. 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.
    22. 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.
    23. 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.
    24. 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. 41(2), pages 1-17, August.
    25. 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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