Domestic support and the WTO negotiations

In their attempt to maximise trade benefits, agricultural trade negotiators must allocate scarce resources and consider trade-offs across issues such as liberalising foreign border measures or reducing foreign domestic subsidies. Analysis and examples support the notion that more liberalisation will be achieved in the new WTO round by emphasis on lowering border barriers and export subsidies rather than attempting to discipline domestic farm subsidies directly. Analyses of EU grain policy, Korean rice policy and US sugar policy show how reduced export subsidy or more import access have substantial trade benefits, even if farmers are compensated with payments or price supports.     

U.S. Farm Safety Nets and the 2000 Agricultural Risk Protection Act

Although crop insurance programs have been an important part of U.S. agricultural policy since the 1930s, the "safety net" matra has taken on new relevance and importance in recent policy deliberations and rhetoric. This paper contains a non technical review of issues underlying the safety net concept in U.S. agricultural policy. We outline recent changes in U.S. crop insurance programs and review provisions of the 2000 Agricultural Risk Protection Act (ARPA), which had a significant impact on U.S. risk management programs by expanding crop and revenue insurance subsidies and stimulating new product development. A simple empirical analysis of how these changes may have affected program participation is considered. We then outline points relevant to 2002 Farm Bill deliberations. As is pointed out, the safety net concept seems pervasive to all policy discussions. Countercylical payments, even when provided on an ad hoc basis, may distort production and trade conditions.     

Effects of subsidized crop insurance on crop choices

This study focuses on how subsidized crop insurance affects crop choices. Crop insurance may change farm investments by reducing risks and providing subsidies. First, actuarially fair insurance reduces risks in crop production and marketing, holding the expected return constant. Second, insurance subsidies encourage farms to purchase crop insurance, which increases the expected return to insured risky crops. Farms also have many self‐insurance mechanisms such as crop diversification or working off the farm. We derive conditions under which (1) unsubsidized and actuarially fair crop insurance or (2) insurance premium subsidies lead to more investment in a risky higher return crop. We then examine the role of self‐insurance for these conditions. The impact of premium subsidies is decomposed into a direct profit effect and an indirect coverage effect. These effects are explained by substitutions between market insurance and self‐insurance and between a risky crop and a safe crop. We discuss each effect as a combination of subsidy and risk effects. Numerical illustrations show that an insurance subsidy has a larger impact on risky crop investments compared to that of an input subsidy when farms are more risk‐averse and have high costs of self‐insurance. The framework provides a novel way to evaluate subsidized crop insurance programs.     

Farm Poverty and Safety Nets

Farm families with incomes below the poverty line are far less likely than wealthier farmers to receive farm support payments. Using data from the 1989–2004 Current Population Survey, we find that poor farm families are also not participating in other assistance programs. Controlling for other factors, eligible farm families have substantially lower participation rates in the Food Stamp Program and in Medicaid than eligible nonfarm families. Removing farm safety net program payments would increase the number of farmers eligible for these programs but, in the absence of behavioral changes, would only lead to small increases in the number of recipients.     

THE 2002 US FARM BILL: A MORE POSITIVE ASSESSMENT

The 2002 US Farm Bill: A More Positive Assessment Recent experience in the US strongly suggests that, given political realism, price instability is now the over‐riding problem of agricultural policy. From this perspective, the re‐adoption of deficiency payment support in the 2002 Farm Bill seems sensible. To critics who claim otherwise, on the ground that deficiency payments are not decoupled, it is argued here that decoupling is an empty concept for which empirical evidence is lacking, at least in agriculture. Being fixed, decoupled payments are not stabilising. The 2002 Farm Bill would have been even better if its fixed PFC payment element, inherited from the 1996 FAIR Act, had been omitted. Recent US experience with farm policy holds valuable lessons for CAP reform, including the need to ensure that producers are backed by an adequate price stabilising instrument. La loi agricole américaine 2002: une interprétation plus positive Sauf à manquer de réalisme politique, ? experience recente des Etats Unis conduit à considèrer ? instabilityé des prix comme le problème majeur de la politique agricole. De ce point de vue, ?‘adoption ?’ un système de ‘paiements compensatoires’ (deficiency payment) dans la loi agricole 2002 n'est pas dépourvu de sens. A ceux qui, au motif que les paiements compensatoires ne sont pas découples, disent le contraire, on répondra que le découplage est un concept vide de sens, dont ? existence n'est attestée par aucune étude empirique, en tout cas en agriculture. De par leur flxité même, les primes decouplers ne peuvent contribuer a la stabilisation. La loi agricole 2002 aurait été encore meilleure si elle avait supprime les primes fixes ‘PFC,’ héritées du FAIR act de 1996. Pour la PAC, il y a beaucoup de le?ons à tirer de cette expérience que les Etats Unis viennent de faire avec leur politique agricole, notamment la nécessité? adosser les producteurs à un système adéquat de stabilisation. Das US Landwirtschaftsgesetz von 2002 Eine etwas positivere Die jüngsten Erfahrungen aus den USA legen es nahe, dass bei realistis‐cher politischer Einschätzung die Preisinstabilität heute das größte Problem für die Agrarpolitik darstellt. Aus dieser Sicht erscheint die Wiederaufnahme der Stützung durch ‘deficiency payments’ (Produktsubventionen) in das Landwirt‐schaftsgesetz sinnvoll. Den Kritlkern, die das Gegenteil behaupten, da es sich bei deficiency payments nicht um entkoppelte Zahlungen handele, wird hier entgegen gehalten, dass es sich bei der Entkopplung um einen leeren Begriff handelt, für welchen zumindest im Bereich der Landwirtschaft keine empirischen Beweise vorliegen. Da entkoppelte Zahlungen vorab festgelegt werden, wirken sie sich nicht stabilisierend aus. Das Landwirtschaftsgesetz von 2002 würde noch besser greifen, wenn die aus dem FAIR‐Gesetz von 1996 ubernommenen festgelegten PFC (production flexibility contracts)‐Zahlungen nicht mit aufgenommen worden wären. Aus den jüngsten Erfahrungen mit der Agrarpolitik in den USA ergeben sich wertvolle Lehren in Hinblick auf die Reform der GAP; unter anderem die Notwendigkeit, dass die Produzenten durch ein geeignetes Instrument zur Preisstabilisierung geschützt werden.     

Driving Forces behind Exiting from Farming in Western Europe

This study examines the exit process of Western European farmers. Using a simple theoretical model of structural change, we examine empirically the impact of farm characteristics, macroeconomic conditions and policy intervention on farm exits during the 1990s. Econometric estimates using regional data for 110 regions in Western Europe indicate that exits from farming are strongly influenced by farm characteristics and policy conditions. In particular, exit rates are higher in regions with smaller farms and are closely related to production structures. Exit rates are lower in regions with more part‐time farming, high subsidy payments and high relative price increases for agricultural outputs, indicating that off‐farm income and government intervention slow down structural change in European agriculture.     

The effect of decoupling on marginal agricultural systems: Implications for farm incomes,land use and upland ecology

In many parts of Europe, decades of production subsidies led to the steady intensification of agriculture in marginal areas. The recent decoupling of subsidies from production decisions means that the future of farming in these areas is uncertain. For example, in the uplands of the United Kingdom, an area important both for biodiversity conservation and ecosystem service provision, hill farmers steadily increased stocking densities in response to headage payments but must now reconfigure farm businesses to account for the shift to the Single Farm Payment scheme. We examined hill farming in the Peak District National Park as a case study into the future of marginal agriculture after decoupling. We surveyed 44 farm businesses and from this identified six representative farm types based on enterprise mix and land holdings. We developed linear programming models of production decisions for each farm type to examine the impacts of policy changes, comparing the effects of decoupling with and without agri-environment and hill farm support, and evaluating the effects of removal of the Single Farm Payment. The main effects of decoupling are to reduce stocking rates, and to change the mix of livestock activities. Agri-environmental schemes mediate the income losses from decoupling, and farmers are predicted to maximise take up of new Environmental Stewardship programmes, which have both positive and negative feedback effects on livestock numbers. Finally, removal of the Single Farm Payment leads to negative net farm incomes, and some land abandonment. These changes have important implications for ongoing debates about how ecological service flows can be maintained from upland areas, and how marginal upland farming communities can be sustained.     

US farm support under a Biden administration: Plus ça change,plus c'est la même chose?

During the Trump administration, there has been an unprecedented increase in the level of domestic support provided to US agricultural producers. Direct farm supports, including price and income support payments, federal crop insurance, and supplemental assistance to compensate losses due to the trade war with China and the pandemic, have accounted for more than one‐third of net farm income. Those payments have threatened to push the United States over its World Trade Organization (WTO) domestic support obligations and increased its vulnerability to potential dispute settlement challenges in the WTO. The incoming Biden administration will likely bring a new focus to repurpose farm subsidies to provide environmental benefits, such as reduced greenhouse gas emissions, but to achieve those reforms they will need to convince a US Congress that has historically been prone to maintaining the status quo.     

Agricultural Payments and Land Concentration: A Semiparametric Spatial Regression Analysis

Over the last twenty years, both crop production and agricultural payments have shifted toward larger operations. This study examines whether payments from federal farm programs contributed to increased concentration of cropland and farmland. Using zip code–level data constructed from the microfiles of the 1987–2002 agriculture censuses we examine the association between government payments per acre and subsequent growth in land concentration. A semiparametric generalized additive model (GAM) controls for location and historical concentration, sales per acre, and ratio of cropland area to zip code area. Findings indicate, both with and without nonparametric controls, government payments are strongly associated with subsequent concentration growth.     

The influence of direct payments on farmers’ hail insurance decisions

We analyze determinants of hail insurance use of Swiss farmers, using FADN panel data covering the period 1990–2009. Mixed effect logistic regression models are estimated to identify the most important farm and farmer characteristics that trigger insurance use. In addition, information on local hail risk is taken into account in these models. It shows that larger farms, with specialization in crop production, and with larger local hail risks are more likely to adopt the hail insurance. Moreover, insurance users are usually older and better educated. Since the early 1990s, Swiss agricultural policy has reduced price support and introduced general and ecological direct payments. This has led to a much higher importance of direct payments for farmers’ incomes. Our analysis shows that this development has contributed to decreasing hail insurance adoption rates in Switzerland over the period considered. Our results indicate that the larger the share of direct payments for total farm revenue, the less attractive is insurance as a risk management strategy for farmers. This interdependency should be explicitly considered by agricultural policy in the design of support mechanisms.     

Has the Market's Estimate of Crop Price Variability Increased since the 1996 Farm Bill?

Following enactment of the 1996 Farm Bill, corn and soybean implied volatilities covering the preharvest and storage seasons increased 16–23% between 1987–1995 and 1997–2001. The increase was statistically significant at the 90% confidence level. Standard deviation of corn and soybean prices derived from the implied volatilities increased 7–25%, but only the increase for preharvest corn was statistically significant. Further muddling the picture is the decline in variability of annual U.S. average corn and soybean cash price. These mixed findings point to continuing disagreement about government's role in managing farm risk in the post-1996 Farm Bill world.     

The Welfare Economics of a Biofuel Tax Credit and the Interaction Effects with Price Contingent Farm Subsidies

A framework is developed to analyze the effects of a biofuel consumer tax exemption and the interaction effects with a price contingent farm subsidy. Ethanol prices rise above the gasoline price by the amount of the tax credit. Corn farmers gain directly while gasoline consumers only gain from any reduction in world oil prices due to the extra ethanol production. Domestic oil producers lose. Historically, the intercept of the ethanol supply curve is above the gasoline price. Hence, part of the tax credit is redundant and represents "rectangular" deadweight costs that dwarf triangular deadweight cost measures of traditional farm subsidies.     

The impacts of multiperil crop insurance on Indonesian rice farmers and production

This article analyzes the effect of multiperil crop insurance policy for risk‐averse Indonesian rice farmers located in Tuban and Gresik Regencies of the East Java Province. Based on the model, comparative static analysis of a change in policy variables (coverage levels and premium subsidies) on input use through the coupling, wealth, and insurance effects are presented. The comparative static results are largely ambiguous and left as empirical questions. Consequently, the model is numerically simulated to quantify the effects of different coverage levels and subsidy rates on input use, expected net insurance payments, and certainty equivalents. The empirical analysis shows that MPCI crop insurance results in a decline in expected yield for coverage levels above about 82.5% for both regencies. Furthermore, higher subsidy rates amplify the reduction in input use and yield. Therefore, incomplete coverage with relatively low premium subsidies is the best policy to minimize the impact on input use and yield. However, from the farmers’ perspective, the optimal policy combination results from the highest coverage level and subsidy, which offer the largest expected net insurance payments and certainty equivalent.     

A Market-Forces Policy for the New Farm Economy?

This paper first discusses the changes that are bringing about the New Farm Economy. A wave of consolidation has shifted agricultural production to larger, lower cost producers in almost all sectors of agriculture. At the same time, supply chains represent a new form of ownership and control that is replacing commodity markets as the preferred way to market farm output. Both consolidation and the development of supply chains offer the possibility of producing a greater variety of safer, cheaper food. The paper argues that farm policy, crafted for the agriculture of the 1930s, is no longer necessary to raise or stabilize farm incomes, and is largely ineffective anyway. Moreover, farm policy impedes the market forces driving innovation and efficiency in the farm economy. Letting market forces guide the evolution of the farm economy, unfettered by outdated government programs and unnecessary farm subsidies, is the best way to harness the benefits of the New Farm Economy. Getting rid of government subsidies and control will lead to dramatically fewer farmers in agriculture: a policy to deal explicitly with those who will leave agriculture is needed. A transition policy is described that focuses on helping reduce the number of farmers by offering a buyout to farm producers which subsidizes their exit from farming and prevents reentry.     

Impact of CAP Subsidies on Technical Efficiency of Crop Farms in Germany,the Netherlands and Sweden

This paper analyses the impacts of CAP reforms, particularly subsidies on technical efficiency of crop farms. An output distance function is employed and estimated together with an inefficiency effects model to capture the effects of CAP subsidies and farmer characteristics on farm efficiency. The model is applied to FADN data (period 1995–2004) of crop farms in Germany, the Netherlands and Sweden. The study shows that the 10‐year average technical efficiency is 64% in Germany, 76% in the Netherlands and 71% in Sweden. The average annual changes in technical efficiency are 0.1%, 0.4% and 2.3%, respectively. The share of crop subsidies in total subsidies has a negative impact on technical efficiency in Germany but a positive impact in Sweden, although insignificant in the Netherlands. The share of total subsidies in total farm revenues has negative impacts on technical efficiency in all three countries, consistent with income and insurance effects. Positive (negative) change in technical efficiency is mainly attributable to farm size (degree of specialisation) in Germany, and degree of specialisation (degree of subsidy dependence) in the Netherlands and Sweden.     

Agricultural Policy Reform and Off‐farm Labour Decisions

Off‐farm labour decisions of a sample of Kansas farmers are evaluated. The central question of our analysis pertains to whether 1996 US farm policy reforms may have altered the decisions to work off the farm. The effects of policy decoupling on off‐farm labour are complex: different aspects of policy changes can have opposing effects on off‐farm work decisions. Essentially, this makes this issue an empirical question. Results show that the introduction of fixed, decoupled payments in 1996 might have reduced the likelihood of off‐farm labour participation. However, the new policy environment may have increased farm households’ revealed aversion to risk, motivating a higher participation in non‐farm labour markets. The effects of 1996 policy reforms on farm income variability could have been attenuated by changes in US crop insurance programmes and by an increase in emergency assistance payments towards the end of the 1990s. The reduction in price supports may have increased the motivation for working off the farm. The net effect of the overall reforms on off‐farm work participation is not likely to have been large.     

Efficiency, subsidies, and environmental adaptation of animal farming under CAP

The purpose of this article is to model the interaction between the targets of the current Comman Agriculture Politic (CAP): environmental adaptation, subsidies, and efficiency of animal farming. To this end we first have to identify the production frontier and relative efficiency level for each animal‐oriented farm in the sample. The production frontier and efficiency index for each type of farm (assuming no specific production functions) are identified using Data Envelope Analysis (DEA) techniques. We then address the relationship between relative efficiency, farm size, and environmentally friendly behavior by carrying out a nonparametric regression of efficiency, on economic size, a proxy for the degree of environmental appropriateness, and regional dummies. Calculations of the efficiency of the farms including direct subsidies are compared with the counterfactual exercise in the case in which direct subsidies are not considered. Finally, we look for relations between subsidies and factors such as farm size, efficiency, and environmentally friendly behavior. One key result shows that, on average direct payments generally tend to increase efficiency. However, in most of the cases the mean efficiency decreases as the percentage of direct payments rises. Direct payments are found to be positively related to environmentally friendly production, at least in Germany. However, in general, the direct payment system is not sufficient to offset the fact that the less environmentally friendly farms as well as the larger farms are more efficient.     

美国2008新农业法案中的棉花补贴政策及其启示

本文分析了美国2002农业法案框架下棉花补贴政策的实施情况,考察了美国2008新农业法案中棉花补贴政策的改革内容。研究表明,美国的巨额棉花补贴显著地提高了棉花农场的收益,促进了棉花生产,但同时也有负面影响。美国2008新农业法案增添了新的补贴政策,其实质在于维护和提高美国棉花的国际竞争力。     

The Role of the Common Agricultural Policy in Enhancing Farm Income: A Dynamic Panel Analysis Accounting for Farm Size in Italy

As a multi-objective policy, the EU Common Agricultural Policy continues to secure significant income support for farmers as one of the nine specific objectives. We estimate the income transfer efficiency of a broad set of pivotal policy measures, focusing on the effects of farm structure on income transfer efficiency. We use dynamic modelling, based on a micro-data panel of Italian farms for the period 2008–2014, allowing for endogeneity, simultaneity bias, and omitted variables. In line with previous studies and economic expectations, we find that decoupled direct payments provide the highest contribution to agricultural incomes, followed by agri-environmental payments and on-farm investment subsidies. Coupled payments have no significant impacts on farmers’ income. Generally, for all analysed Common Agricultural Policy measures, large farms benefit from greater transfer efficiency levels compared with medium and small farms. These differences among instruments and across farms suggest that policy-participation costs may play a pivotal role, together with the economic structure of farms, in determining the income transfer efficiency of CAP policies.     

Off‐farm employment and reasons for entering farming as determinants of production enterprise selection in US agriculture

In today’s agriculture, farmers consider off‐farm employment and lifestyle goals in complex ways to select production enterprises. Data from USDA’s Agricultural Resource Management Survey were used to examine how off‐farm employment and ‘reasons for entering farming’ influence production enterprise selection in US agriculture. A two‐stage analysis with a multivariate tobit model was used to examine the impact of off‐farm employment as influenced by government farm programme payments, reasons for entering farming, demographics and location on production enterprise selection. Results underscore the impacts of reasons for entering farming and off‐farm employment on production enterprise choice and provide implications for policy development. The study highlights the importance of government farm programme payments in production enterprise selection by US farmers.