The Effects of Policy Expectations on Crop Supply, with an Application to Base Updating

Abstract

We develop a dynamic model to assess the effects of policy expectations on crop supply and illustrate the approach with estimates of the effects of base updating in U.S. crop programs. For corn and soybeans in the Corn Belt, the effect of base updating is relatively small because relevant crop alternatives are subject to similar policies and the alternatives are substitutes in production. Increasing acreage of one program crop to capture future payments from base updating reduces future payments from the alternative crop. We also use our model to assess the effect of base updating on acreage response to prices.

The Unintended Beneficiaries of Farm Subsidies

“…The removal of the planting restrictions, in theory, led to a decoupling of subsidy payments and planting decisions. Hendricks and Sumner (2014), as well as Goodwin and Mishra (2006), show limited effects of the subsidies on production decisions, reinforcing the decoupling hypothesis. However, Devadoss, Gibson, and Luckstead (2016) theorized the payments are relevant to production decisions because of their impact on farmer's entry-exit decisions.…”

Would farmers benefit from removing more land from production in the next farm bill?

“…Examples of decoupled payments are ARC, PLC, and the old direct payments, because these programs pay on base production rather than the actual amount of production for the respective crop. Economists have illustrated several mechanisms by which decoupled payments could actually distort production, but most of the evidence indicates that such distortions are small (Hendricks & Sumner, 2014; Weber & Key, 2012). The third policy is a coupled subsidy that pays farmers per unit of production.…”

Finishing Global Farm Trade Reform: implications for developing countries

“…In 2013, the US notified direct payments totalling US$5 billion under paragraph 6 (the direct payment program was eliminated in the 2014 farm bill). Recent empirical research has questioned whether decoupled support is truly decoupled (Goodwin and Mishra 2006;Gardner, Hardie and Parks 2010;Hendricks and Sumner 2014).…”