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The Impacts of Alternative Farm Bill Design on U.S. Agriculture

The Impacts of Alternative Farm Bill Design on U.S. Agriculture. Keith Coble and Barry Barnett. Given high prices- wheres the money. Domestic Policy and Trade. Tension between WTO commitments and producer group desires for domestic policies

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The Impacts of Alternative Farm Bill Design on U.S. Agriculture

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  1. The Impacts of Alternative Farm Bill Design on U.S. Agriculture Keith Coble and Barry Barnett

  2. Given high prices- wheres the money

  3. Domestic Policy and Trade • Tension between WTO commitments and producer group desires for domestic policies • What’s really new in the 2007 debate – revenue designs • Sought most by Midwestern corn growers • Little enthusiasm from others

  4. Revenue Variability

  5. Price-Yield Correlation

  6. Revenue Designs • As proposed, not really more WTO-compliant • What do they do to aggregate outlays? • What do they do to producer risk reduction? • Can the same level of safety net be achieved for a lower government cost?

  7. Spatial Aggregation National State County Across commodities Permanent disaster bill Commodity-specific Net Integration with other programs Crop insurance wraps LDP replacement Target revenue Legislatively-determined Market-based Variations on the Revenue Theme

  8. Options Examined • Continuation of Current Policy • House Bill with Price Counter-Cyclical • House Bill with Nation Revenue Counter-Cyclical • Senate ACR as Passed from Committee • Senate ACR with a Crop Insurance Wrap • Senate Producer’s Choice between Current Programs and ACR

  9. Our Analysis • Results simulate representative corn, cotton, wheat, and soybean revenue from each of hundreds of counties • Models incorporate price and yield risk, and includes county and other aggregate stochastic variables • Importantly, the system provides a forecast of program payments into the future (like FAPRI, A&M, and CBO) • Models allow estimates of the risk reduction and government payouts under alternative designs if implemented for 2008-2012

  10. Model Design • Market-year average prices from NASS, 1974-2005 • Relative price changes are computed • County, state, and national yields from NASS, 1975-2005 • Yields detrended • Representative farm-level yield variability obtained by: where

  11. Model Design • Starting price = September 2007 futures market prices for 2008 delivery months • The national marketing year average (MYA) price in year t is obtained by taking the expected price in year t-1 and multiplying it by the historical price change associated with the random draw on national yield.

  12. Methods: Revenue Simulation 5 years * 500 iterations = 2500 random draws PSt PSn+1 Yft Yfn+1 PSt+1 Yft+1 × PSnt+25 Yfnt+25 PSt+25 Yft+25

  13. Methods: Random Draw Ycn+1 YSt YSn+1 Yft Yfn+1 Yct YNt PRt PRn+1 Ct Cn+1 Yct+1 YNt+1 Yft+1 PRt+1 YSt+1 Ct+1 Yfnt+25 Yct+25 Yft+25 PRt+25 Ycnt+25 YNt+25 Ct+25 YSt+25

  14. Aggregate 5-year average per acre payments

  15. Corn

  16. Corn

  17. The Effect of Wrapping Insurance Around Revenue Programs

  18. Distribution of 2010 Government Payments

  19. Final Thoughts • Is there really a desire for risk efficient policy?

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