Joint production, land allocation, and the effects of the production flexibility program

Abstract

An empirical land allocation model is developed and fit to production data of the top five crops in the USA and to crop output prices adjusted for direct payments and subsidies. The land allocation model based on the theory of the multiproduct firm allows for jointness in production, and it is extended to handle non-allocable inputs. Specifically, the model is used to analyze whether the Food Security Act of 1985, known as the 1985 Farm Bill, increased flexibility in land allocation decisions by comparing responsiveness of land allocation among the crops, before and after the passage of the 1885 Farm Bill, to changes in total land availability and changes in crop output prices. The results confirm that a structural change in land allocation dynamics took place after the passage of the 1985 Farm Bill. We show that more crops (wheat and soybeans, in particular) become more acreage responsive to the changes in total land available for production after 1985. For example, the results indicate that competition for acreage between corn and wheat is associated with the implementation of the 1985 Farm Bill. The results provide evidence that the onset of the increased acreage allocation flexibility by farmers originated in the policies of the 1985 Farm Bill. The study also demonstrates that a policy targeting a particular crop will inadvertently affect production of other crops. This study quantifies these indirect effects on the five major crops grown in the USA.