Impact of farm programs on farm households in the US

Abstract

The growth of the firm is often financed through retained earnings. Entrepreneurs look to expand, make new investments, or pay off debt using free cash flows from the business. However, entrepreneurs in farming businesses derive income from enterprises that have variable income, and farm program payments provided by the government helps smooth income and consumption. Using national-farm level data (2008–2013) and free cash modelling approach we study how government commodity support (decoupled, coupled payments and subsidized crop insurance) affects the financial status of farm businesses. Additionally, we investigate the impact of government commodity support on farming business and household expenditures. Findings suggest that free cash flows to equity has a significantly negative impact on total farm household expenditures. Further, our results also suggest that the effect of farm program payments, especially decoupled payments, is small. Elasticities on the decoupled Payments and coupled Payments variables are both positive. However, the magnitude of the effect on the former is four times higher than on the latter. Hence, most of the impact of Title I support on total farm household expenditures will likely be via the decoupled Payments channel. Nonetheless, if the goal of commodity support is to reduce the consumption volatility of farm household, our results suggest that these payments have little impact.