Federal Agriculture Improvement Research Articles

Did the Federal Agriculture Improvement and Reform Act of 1996 Affect Farmland Values?

Farmland values are affected by numerous factors, including farm policy, shifts in demand for agricultural output both foreign and domestic, monetary policy and urban pressure. In this study we use an information measure to examine whether the shift toward a more market-oriented policy in 1996 changed the relationship between farmland values and government payments. The results indicated that the shift in agricultural policy resulted in significant shift in this relationship.

Farm Wealth Inequality Within and Across States in the United States

This paper uses Theil's (1979) entropy-based measure of inequality and farm-level data to examine changes in farm business wealth (farm equity) of farm households. The farms associated with farm households are grouped by state into ten regions of the United States. The Theil entropy measure is then calculated and used to decompose total inequality of farm wealth into within-state and across-states (between states) inequalities for each region. Results show that since the enactment of the 1996 Federal Agricultural Improvement and Reform (FAIR) Act, inequality in farm wealth among farms within a state has decreased relative to the number of farms per state, across all regions. Further, most of the reduction in farm wealth inequality is attributed to increased equality in the distribution of real estate assets of the farm households, a major component of farm wealth.

Cropping systems for the Southern Great Plains of the United States as influenced by federal policy

The majority of cropland in the rain-fed region of the North Central District of Oklahoma in the US is seeded with winter wheat (Triticum aestivum) and most of it is in continuous wheat production. When annual crops are grown in monocultures, weed species and disease agents may become established and expensive to control. For many years prior to 1996, federal policy provided incentives for District producers to grow wheat and disincentives to diversify. In 1996, the Federal Agriculture Improvement and Reform (FAIR) Act (Freedom to Farm Act) was instituted, followed by the Farm Security and Rural Investment Act (FSRIA) in 2002. The objective of this study was to determine the impact of FAIR and FSRIA programs on crop diversity in the North Central District of Oklahoma. The economics of three systems, monoculture continuous winter wheat, continuous soybean (Glycine max) and a soybean–winter wheat–soybean rotation, were compared using cash market prices (CASH), CASH plus the effective loan deficiency payments (a yield-dependent subsidy) of the FAIR Act of 1996, and CASH plus the effective loan deficiency payments of the FSRIA of 2002. We found that the loan deficiency payment structure associated with FAIR provided a non-market incentive that favored soybean. However, under provisions of the 2002 FSRIA, the incentive for soybean was adjusted, resulting in greater expected returns for continuous wheat. Due to erratic weather, soybean may not be a good alternative for the region. Research is needed to identify crops that will fit in a rotation with wheat.

A Review of Empirical Studies of the Acreage and Production Response to US Production Flexibility Contract Payments under the Fair Act and Related Payments under Supplementary Legislation

This paper provides a review of the literature relating to empirical studies of the acreage and/or production response to the direct payments made to US farmers of wheat, feed grains, cotton and rice under the Federal Agriculture Improvement and Reform Act of 1996 and related payments made under additional legislation during the period 1999-2002.

Another Look at Decoupling: Additional Evidence on the Production Effects of Direct Payments

An important shift in U.S. agricultural policy occurred with the 1996 Federal Agriculture Improvement and Reform (FAIR) Act. Although the actual intent and effects of the Act remain a topic of debate, many observers believed that the 1996 legislation signaled a transition toward a new policy environment characterized by diminished government involvement in agricultural markets. Perhaps the biggest change in policy under the Act pertained to the use of fixed, decoupled payments (called “production flexibility contract” or “Agricultural Market Transition Act” [AMTA] payments). Under the terms of the FAIR Act, AMTA payments were intended to decline each year until the FAIR Act expired in 2002. However, periods of low prices and localized yield shortfalls during the late 1990s led Congress to pass supplemental, ad hoc payments to farmers. These payments, known as “Market Loss Assistance,” were also decoupled since they were paid on the basis of historical base acreage and thus carried no current production requirements. These payments were, however, tied to market prices in that they were a response to poor market conditions.

Farm‐Level Production Effects from Participation in Government Commodity Programs: Did the 1996 Federal Agricultural Improvement and Reform Act Make a Difference?

In theory, lump-sum transfers are a way to redistribute wealth without distorting production decisions. Recent agricultural policy reforms are an unusual large-scale application of this concept. The 1996 Federal Agricultural Improvement and Reform (FAIR) Act removed most price-contingent agricultural subsidies and replaced them with Production Flexibility Contracts—lump-sum payments with few ties to farmers’ production decisions. The payments were envisioned as way to maintain income transfers to agricultural interests while minimizing production distortions. The United States has argued that these “decoupled” agricultural payments are minimally trade distorting (USDA-ERS). There is a great deal of uncertainty about how the system of agricultural payments established under the 1996 reforms affects production. Some, including representatives from developing nations with domestic agricultural sectors that compete with the United States, contend that decoupled payments significantly affect agricultural production and trade. Two general arguments underpin this assertion. First, decoupled payments are not really lump sum—that is, despite the reforms, important links to production remain. For example, there are restrictions in the FAIR Act that preclude new vegetable plantings or the conversion of land to nonagricultural uses. Second, the perfect market assumptions underpinning the

Decoupled Payments: Household Income Transfers in Contemporary U.S. Agriculture

Decoupled payments are lump-sum income transfers to farm operators that do not depend on current production, factor use, or commodity prices. Such payments are not currently constrained by global trade rules, but many countries argue that they distort production and trade and that their use should be limited. This report examines the U.S. experience with decoupled payments in its Production Flexibility Contracts program under the Federal Agriculture Improvement and Reform (FAIR) Act of 1996. The payments have improved the well-being of recipient farm households, enabling them to comfortably increase spending, savings, investments, and leisure but with minimal distortion of U.S. agricultural production and trade. However, farm operators may retain as little as 40 percent of program benefits due to higher land rents. While commercial farms received the largest share of decoupled payments, they rent in over two-thirds of their program acres, which suggests that a sizable portion of their program benefits may be passed through to nonfarming landowners.

Unbiasedness and Market Efficiency Tests of the U.S. Rice Futures Market

This study examines short-run and long-run unbiasedness within the U.S. rice futures market. Standard OLS, cointegration, and error-correction models are used to determine unbiasedness. In addition, the forecasting performance of the rice futures market is analyzed and compared to out-of-sample forecasts derived from an additive ARIMA model and the error-correction model. The results of our unbiasedness tests and the forecasting performance of the rice futures market provide supporting evidence that the U.S. long-grain rough rice futures market is efficient. The results have important price risk management and price discovery implications for Arkansas and U.S. rice industry participants. T he importance of commodity futures markets as price risk management and forecasting tools has become a central issue in the aftermath of The Federal Agriculture Improvement and Reform Act of 1996 (FAIR Act). The shift toward less government intervention under the FAIR Act has pushed the U.S. agricultural sector towards a more market-oriented system. An understanding of price risk management alternatives other than government programs is important for market participants. One of the key alternative strategies is the use of futures

Deepening Our Understanding of the New International Trade Environment: Discussion

International trade continues to be an important topic for the U.S. agricult~ual sector and its economic well-being, especially with the launching of a new round of negotiations following the World Trade 01-ganization (WTO) meeting in Doha. Agricultural issues are a prominent and controversial part of the new Doha round, as they became in the UI-uguay round when agriculture was included in a prominent way for the first time. In addition, the North American Free Trade Agreement (NAFTA). negotiations for the Free Trade Area of the Americas, the U.S.-Chile agreement, and other trade agreements have had or will have major impacts on agriculture. Thus, a better understanding of international problems, issues, and policies is essential for the sector and for development of domestic sector policies and programs, including agricultural legislation being developed to replace the I996 Federal Agricultural Improvement and Reform (FAIR) Act. Inter-national trade issues are important factors that affect legislative action. but international trade provisions, especially those of the WTO, are constraints that limit the scope of policies with respect to domestic subsidies, export subsidies, etc. The papers in this session contribute to a better uriderstanding of the complex and interrelated issues of domestic and foreign agricultural polices. They address three crucial aspects of trade and agriculture: (1) globalization and its effects on competitiveness. (2) foreign direct investment versus trade. and (3) exchange rate impacts on agricult~~ral tracie. They also indicate that these issues and problems are cotnplex. with varied. complex, and multidimensional options that cannot be easily resolved. There are several important topics that cannot be covered adequately in a single session. These include the environment, dornestic subsidies, export subsidies. and multifunctionality. Some of these issues are discussed in other sessions of these meetings.

U.S. Farm Policy and the Volatility of Commodity Prices and Farm Revenues

AbstractA dynamic three‐commodity rational‐expectations storage model is used to compare the impact of the Federal Agricultural Improvement and Reform (FAIR) Act of 1996 with a free‐market policy, and with pre‐FAIR policies. Results suggest that FAIR did not lead to significant increases in long‐run price volatility or revenue volatility. The main impact of pre‐FAIR, relative to the free‐market regime, was to substitute government storage for private storage in a way that did little to support prices or to stabilize farm incomes. Results also indicate that U.S. grain market volatility in 1995–2000 was due to fundamental market forces and not to FAIR.

Ideology and discourse: Characterizations of the 1996 Farm Bill by agricultural interest groups

The relationship betweendiscourse and ideology can be described as thatof process and effect [Purvis and Hunt (1993)British Journal of Sociology 44: 473–499].Discourse, used within relations of domination,can result in the formation of ideology. Tostudy this relationship systematically requiresa methodology that contextualizes discoursewithin social relations and examines when suchdiscourse becomes an ideology. I use Thompson'stheory/methodology of ``depth hermeneutics'' tostudy documents produced by agriculturalinterest groups concerning the 1996 FederalAgriculture Improvement and Reform (FAIR) Actand I assess the ideological status of thediscourses contained in these documents. Thefindings suggest that the organizationsrepresenting the small-to-medium-sized farmerstended to use more agrarian themes, fewermarket themes, and fewer linguistic strategiesindicative of ideology. The organizationsrepresenting more concentrated,vertically-integrated interests andagribusinesses use fewer agrarian themes, moremarket themes, and more linguistic strategies.Therefore, market themes, not agrarian themes,form an ideology in this context.

Do “Decoupled” Payments Affect U.S. Crop Area? Preliminary Evidence from 1997–2000

The Federal Agriculture Improvement and Reform (FAIR) Act of 1996 changed the manner in which the U.S. government provides direct payments to U.S. farmers. Under the FAIR Act, producers are eligible for fixed production flexibility contract (PFC) payments independent of the production of specific crops.1 With a few exceptions,2 supplemental market loss assistance (MLA) payments authorized in subsequent legislation have been made to producers under similar terms; i.e., a producer cannot increase or decrease MLA payments by increasing or decreasing production. The United States has declared that PFC

An Evaluation of Federal Order Reform

The Federal Agricultural Improvement and Reform Act of 1996 required the Secretary of Agriculture to reform federal milk marketing orders. The Secretary carried out this task and issued a final rule on March 31, 1999, that was eventually approved by dairy farmers in a national referendum. However, a temporary restraining order (TRO) was issued on September 28, 1999, that halted the reform process. The TRO was effectively overturned and the reform process restarted when President Bill Clinton signed the Consolidated Appropriations Act of 2000 on November 29, 1999. The final rule as amended consolidates the number of orders, develops a multiple component pricing system that determines new formulas for class prices, and provides a new system for pricing fluid milk based on county-level price differentials. The impact of these changes is to provide more transparency in pricing and improved market signals to farmers. But the new system is also much more vulnerable to changes in dairy commodity prices. The objective of this report is to provide a comprehensive overview of federal order reform and to analyze the impact of recent changes in class price formulas.

Impacts of the Northeast Interstate Dairy Compact on Supply, Retail Prices and the WIC Program: An Introduction

The Northeast Interstate Dairy Compact (Compact), the first regional dairy compact in the U.S., has been the focus of a great deal of attention and speculation during the past several years. The Compact was authorized under the Federal Agriculture Improvement and Reform act of 1996 and was enacted into law by each of the six New England states, Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont (U.S. Government). The Compact explicitly recognizes dairy farming as an important component of the New England landscape that provides both cultural and economic benefits to the region. The Compact's stated purposes are to assure the continued viability of dairy farming in the Northeast, as well as its associated support industries, and to provide consumers with an adequate local supply of pure and wholesome milk. The Compact provides a measure of farm fluid milk price control in the New England states in order to help satisfy these goals.

Production Risk, Acreage Decisions and Implications for Revenue Insurance Programs

Revenue insurance programs are an increasingly popular alternative to direct price supports or federal farm income support programs. Such insurance programs are likely to have effects on cropping patterns, particularly if coverage is not universal. These effects on cropping patterns in turn may have unintended environmental consequences. This paper explores the relationship between production risk, cropping patterns and revenue insurance programs. These relationships are first examined using mathematical and statistical models of acreage response. An empirical analysis of these relationships is then performed using economic and environmental data from 421 counties in the Corn Belt, which in turn is used in a simulation analysis to predict changes in crop acreage under two revenue insurance programs. The results confirm that revenue insurance will alter cropping patterns. The effects of these acreage changes are likely to involve environmental consequences, as the counties most prone to acreage shifts are also those with higher potential for environmental damage.Les programmes d'assurance du revenu gagnent de plus en plus en popularité en tant que solution de rechange aux mesures directes de soutien des prix ou aux programmes fédéraux de soutien du revenu agricole. Les programmes d'assurance de ce genre auront sans doute des répercussions sur les systémes de culture, surtout en l'absence d'une couverture universelle. Ces répercussions pourront avoir des conséquences inattendues sur l'environnement. Les auteurs examinent les liens qui existent entre les risques de production, les systémes de culture et les programmes d'assurance du revenu. Pour cela, ils recourent d'abord à des modéles mathématiques et statistiques afin d'étudier la variation de la superficie des cultures. Ils procèdent ensuite à une analyse empirique des mêmes liens à partir des données économiques et environnementales recueillies dans 421 comtés de la ceinture de culture du maïs, avant de s'en servir dans une simulation qui prévoit la variation de la superficie cultivée consécutivement à l'introduction de deux programmes d'assurance du revenu. Les résultats confirment que les programmes de ce genre modifieront les systémes de culture. La variation de la superficie cultivée devrait avoir des répercussions sur l'environnement, car les comtés où la superficie cultivée changera le plus probablement sont aussi ceux où les risques de pollution sont les plus grands.

Agricultural Export Subsidies as a Tool of Trade Strategy: Before and after the Federal Agricultural Improvement and Reform Act of 1996

AbstractIf the main justification for agricultural export subsidies is that they reduce government costs of deficiency payments, then the 1996 farm legislation would make U.S. export subsidies largely unnecessary. An additional argument advanced in favor of export subsidies is that their aggressive use by one country will cause competing countries to reduce or discontinue their own subsidies. This argument is explored by means of a Nash equilibrium in which countries choose both a base subsidy level and a response to competitors, and by a consistent conjectures equilibrium. Little support is found for the argument.

The 1996 FAIR Act: Measuring the Impacts on Land Leasing

Using a 1997 survey of Arkansas farm operators, Federal Agricultural Improvement and Reform (FAIR) Act impacts on changes in cropping mixes on leased land, operator attitudes concerning the sharing of FAIR Act benefits with landlords, and changes in leasing arrangements due to the FAIR Act are investigated. Operators indicated that the FAIR Act caused cropping-mixchanges on 24% of surveyed leases. Although some operators believe that landlords disproportionately benefit from the FAIR Act, about three-quarters feel that there was no change or had no opinion. Similarly, we find little evidence that leasing arrangements changed as a result of the FAIR Act.

Evaluating the Economic Impacts of Regional Milk Pricing Authorities: The Case of Dairy Compacts

Congress consented to the creation of the Northeast Interstate Dairy Compact in the 1996 Federal Agriculture Improvement and Reform Act. Interest is now growing in expanding this compact and creating new multi-regional dairy compacts. Dairy compacts provide a floor for Class I fluid prices and thus stabilize and enhance farm milk prices in compact regions. This analysis indicates that multi-regional dairy compacts will result in clear economic tradeoffs between dairy farmers, processors, retailers, and consumers. While dairy farmers within the compact region may economically benefit from higher farm milk prices, processors, retailers and consumers in the compact region and dairy farmers outside the compact region will face economic losses.

FAIR Act Implications for Land Values in the Corn Belt

In 1996 the federal government enacted the Federal Agriculture Improvement and Reform (FAIR) Act, which represented a sweeping change in public policy toward agriculture. This paper examines the impact of the FAIR legislation on farmland values across the U.S. Corn Belt. A representative farm framework is used to determine the impact of FAIR on farmland values. The analysis suggests that marginal production environments are likely to suffer most severely under FAIR, and that a prolonged period of weak commodity prices could engender sharp declines in farmland values.

Policy reform in American agriculture: analysis and prognosis

Despite substantial transformations in American agriculture, farm programme spending remains a closely guarded prerogative of United States agricultural policy. This work examines both the history of farm subsidies and the contemporary relevance of traditional farm programmes to today's agricultural industries. The text analyzes the mixed performance of past agricultural support programs, reviews the late-1990s debate concerning farm policies, and critically assesses the often staunch political resistance to much-needed policy reforms. Casting a keen eye toward recent developments on both national and international fronts, the authors consider the ramifications of the 1996 Federal Agriculture Improvement and Reform (FAIR) Act as well as multilateral efforts to gain agricultural reform during the Uruguay Round of GATT. Their prognosis hinges upon both the continued growth and competitiveness of the world market and, perhaps more importantly, the ongoing commitment of congressional reform advocates.