Estimates of Minnesota farm-level crop commodity payments under alternative proposed federal policies

Kent Olson and Matthew R. DalSanto

No 7354, Staff Papers from University of Minnesota, Department of Applied Economics

Abstract: With the current federal farm bill expired as of the end of September this year, many proposals have been made to redesign the next bill. The objective of this study is to compare the current policy with major proposed alternatives by estimating the potential payments for 17 example farms in Minnesota under each of the alternatives. The alternative proposals analyzed are the two alternatives in the recently passed House proposal (HR 2419), Durbin-Brown revenue-based support proposal (S 1872), USDA’s proposed policy, NCGA’s proposal of commodity based revenue-based support, ASA’s proposal to adjust loan rates and target prices, multi-commodity revenue insurance, and NFU’s cost-based safety net. These policies are compared in two ways. First, an historical comparison of crop revenue and estimated government payments for individual farms are made under each proposal from 2002-2005. Second, projections of crop revenue and government payments are made using historical yields for each farm, county, and nation; historical price data; and statistical distributions of the yields and prices. Using FAPRI-2 projections (which are closer to the prices expected in the next few years when a new farm bill will be in force), expected TGPs are similar for the most likely alternatives. TGPs for the two House proposals (HB-CCP and HB-RCCP) are consistently a little higher than the current policy. TGPs with the D-B proposal are slightly higher for some farms and slightly lower for others—ranging from 94% to 105% of the current policy. Non-DP payments are projected to be much higher for HB-CCP and HB-RCCP compared to current policy. The non-DP payments are slightly lower on average for the D-B proposal, but there was a wide dispersion across farms. Each of the proposals reduces risk by similar levels as measured by the variability of a farm’s market revenue plus government payments compared to the expected total of market revenue. Since expected payments and risk reductions are similar between the most likely options, the choice between these alternatives depends more on the method used to determine payments and less on what the final amount is. Current policy and HB-CCP use a price based system to calculate payments with target prices set in policy and HB-RCCP sets the target revenue in policy while D-B used a market-oriented system to set the target revenue in each year. So, if the goal is to provide a safety net that moves with market conditions in a volatile world, the D-B proposal would be the best choice based on its market orientation.

Keywords: Agricultural and Food Policy; Agricultural Finance (search for similar items in EconPapers)
Pages: 55
Date: 2007-10
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Persistent link: https://EconPapers.repec.org/RePEc:ags:umaesp:7354

DOI: 10.22004/ag.econ.7354

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