Long‐Term Versus Short‐Term Land Retirement

Abstract

Listen

Translate article

SINCE funds to control farm production and maintain prices are not unlimited, agricultural programs should be selected from among those that use Government funds most efficiently. The purpose of this paper is to evaluate the relative efficiency of annual versus long-term land retirement programs in removing the most production per dollar of Treasury cost. To determine the theoretical efficiency of agricultural programs, we assume that a farmer is willing to divert his land or allotment whenever the Goverment payment equals or exceeds the difference between gross receipts and variable costs. Thus, the ratio of variable costs to gross returns is correlated with the amount of production removed per dollar of payment. Programs that are associated with a high variable cost will give a higher efficiency. Efficiency increases as the time period of the program is extended and more the the farmers' costs become variable. Hence, the greater theoretical efficiency of long-term retirement over a yearly diversion program. Often a discrepancy is observed between the theoretically computed payment that would induce program participation and the amount that farmers state would actually be required. In some cases, farmers may require more than the theoretically computed payment to divert their land from production. This payment premium may be greatest for long-term programs. Farmers tend to shy away from long-term contracts because of their inflexibility over time. Short-term diversion, which is favored by more farmers, has a lower variable cost situation and a smaller theoretical efficiency. The gap between the theoretical payment and the payment asked by farmers for participation was gauged by data from a survey of 198 Oklahoma dryland farmers eligible for the wheat and/or feed grain programs. The sample was distributed proportionately over four randomly selected countries-one country from each of the four major agricultural areas of western Oklahoma. Within each county, names of owner-operators and operators were randomly drawn from the ASCS county records. The cropland available was divided by the farmer into three quality categories. The variable cost of producing wheat and grain sorghum and