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Farm numbers peaked at 6. Farm numbers continued to decline until , but at a much reduced rate 0. There exists a wide diversity of farming types Box 1. Definition of farm types Family farms: Small family farms gross sales of less than USD Intermediate family farms or primary-occupation farms: Large family farms or commercial family farms gross sales of USD or more: Non-family farms consist of partnerships, co-operatives, farms with hired managers, and small corporations with unrelated owners.
Grouping family farms into three types — commercial, rural residence and intermediate — based on both volume of sales and primary occupation, reveals key differences in terms of their numbers, share of production, land holdings and sources of farm-household income Annex Tables E. Most farms fall into the rural-residence family farms category.
Evaluation of agricultural policy reforms in the United States
More specifically, the average age of principal farm operators increased from Even though the total number of farms increased nationwide, many individual sectors, including grains and oilseeds, horticulture, cattle and pig operations, experienced a decline in farm numbers Figure 1. The relatively small net change in farm numbers masks substantial turnover, as farms are continually entering and exiting agriculture. Between and , new farms began operating. These new farms tend to be smaller in size and to have younger operators, who also work off-farm.
On average, in , new farms had an average of 81 hectares ha of land and USD 71 in sales, as compared with the average farm size of ha and USD in sales The Census of Agriculture, The Census of Agriculture, , figures show a continuation in the trend towards an increase in the number of small and very large farms, and a decrease in medium-sized operations. The number of large farms farms with sales of at least USD grew steadily from to , increasing from 85 to Rising commodity prices and increasing yields are some of the drivers behind this shift into higher farm-sale categories.
While the decline in farm numbers and the increase in average farm size have slowed over the last thirty years, the locus of farm production has shifted sharply to the larger farms Figure 1. Another indication of the concentration of production in agriculture is the share of agricultural production produced by large farms those with sales of USD or more. Sales figures are inflation-adjusted to USD. Commodity specialisation Farms in the United States have become increasingly specialised, rather than diversified, with each farm producing fewer commodities Table 1.
About half of the farms in the US produce one single commodity. Smaller farms are the most likely to produce just one commodity, but even large farms produce a limited number of commodities: The commodities in which farms specialise also differ, according to farm-size: High-value crops can generate a large volume of sales per acre, but may require much more labour than cattle farming, as well as more marketing expertise.
Contracting An important feature of continuing structural change in US agriculture — which is closely linked to shifts in production to larger farms, increased specialisation on farms and greater product differentiation — is the increased integration of production and processing activities MacDonald and Korb, About two-fifths of US agricultural production is produced or marketed under contract, although the share varies by commodity and type of farm.
For example, virtually all of the sugar beet and poultry in the US are produced by farmers under contract. Contracting is also very important for cotton, tobacco, fruits, dairy products and pigs. However, only a small portion of wheat, soybeans or maize — all traditional field crops — is grown under contract. As production has become consolidated among large farms, contracting has become more prevalent. Moreover, contracting increased among the largest farms between and , but held steady or declined among smaller farms. Increases in contracting mirrored the volumes of production of large farms.
Farm household incomes and wealth As shown in Annex Table E. Over , net farm incomes steadily increased, while the debt-to-asset ratio decreased, as increases in farm debt were more than offset by growth in farm asset value. The debt-to-asset ratio reached a record low of Net farm income reached an historically high record in , driven by a large increase in crop production that was only partially offset by rising production costs for the farm sector Harris et al. Nevertheless, despite this decline, farm income remains high by historical standards and as farm households, on average, have greater overall wealth than the population as a whole, they are most likely to be better able to absorb short-term decreases in earnings Harris et al.
Gauging the economic well-being of farm households by looking solely at incomes might be misleading because agricultural returns are a combination of both revenue generation and wealth accumulation. As shown in Figure 1. In addition, evidence suggests that the average wealth of farms has increased since due to the rising value of farmland and equity held by farmers overall, coupled with a decline in residential property values Harris et al.
Unlike non-farm households, whose net wealth lies predominantly in houses and other real estate, the net worth of farm households is closely related to the net wealth of their farm business including the farmland. In , median farm-operator household income was USD 50 , or 1. Average farm operator household income by source and total US household income, USD Farm household off-farm income Farm household farm-income US household total income 90 80 70 60 50 40 30 20 10 0 Source: While farm income exhibits considerable variability over time — due to fluctuations in farm output, commodity prices and business cycles, along with macroeconomic policies — farm household income is relatively stable.
The economic portfolios of most farm-operator households are highly diversified and many farm households rely on off-farm income to stabilise their total household income. Income derived from off-farm sources is the largest component of farm household income, and since it has even exceeded the average US household income and incomes from farming actually make up only a small percentage of total farm-operator household income. Usually, the households that operate large family farms those with sales of USD or more have an average farm income that is greater than their off-farm income Annex Table E.
The average household income of family-farm operators in all sales classes exceeded the average for all US households USD 65 However, farm households are following diverse paths to economic well-being. The households of the largest farms relied on farm income to a greater degree than the households of smaller farms. In contrast, small farm households derive almost all of their income from off-farm work and from un-earned income from pensions and financial investments.
For example, while income from farming was, on average, negative USD 6 over the period, earnings from off-farm sources were USD 93 Rural-residence farms usually combine non-farm incomes with farming, or are run by people who have retired, or who view farming as a way to enjoy rural amenities. Households operating intermediate-sized farms have, on average, positive net cash income from their farming operations, but the largest part of their income comes from non-farming sources.
Developments in farm output, inputs and productivity Output trends Although agricultural production can be influenced by a number of factors, such as weather conditions, and economy-wide and sectoral policies, total US agricultural output has been rising over time Annex Table E. While cattle and other meat animals represent the largest component of the total value of livestock output Annex Table E.
Output growth can be attributed to growth in conventional inputs and growth in productivity. Aggregate input-use actually declined at an average rate of 0. The decline in total input level over disguises larger shifts in particular inputs. For example, while labour and capital decreased, material inputs increased. Labour input in agriculture has decreased consistently over time. Over the period, labour input declined at an average annual rate of nearly 1.
A major force in this decline was the substantial substitution of the relatively cheaper capital and machinery inputs for the relatively more expensive labour input. However, hired farm labour is mainly seasonal and concentrated in particular commodities e. Moreover, while the number of workers employed in agriculture and the number of total hours worked have declined, the quality per hour worked has increased.
For example, over the period, labour productivity i. In addition, internet access, which could significantly contribute to an increase in labour productivity, became more widely available. Productivity trends Improvement in productivity growth reflects the increased efficiency with which inputs are transformed into outputs. Agriculture has one of the highest rates of productivity growth in the economy.
While agricultural productivity increased at an average annual rate of 2. The early s saw a continuation of above-average rates of growth in productivity. Not only was growth in input levels fairly low in , but output growth was at historically high levels. Agricultural output showed little growth during , while productivity growth was actually negative in But the return of favourable weather in and led to sharp increases in output and productivity, with productivity growing by 4. On average, productivity continued to grow rapidly over by 1. US agricultural productivity growth compares favourably to agricultural productivity growth in other industrialised countries, and to productivity growth in the overall US economy Ball et al.
Input growth has been typically the dominant source of economic growth for the aggregate economy, and for each of its producing sectors. Agriculture turns out to be one of the few exceptions: Some of the more noteworthy productivity increases have been observed in maize and milk production. Average maize yields increased from 7 metric tonnes per hectare in to 9 metric tonnes per hectare in Average milk production increased from 6 metric tonnes per cow in to 9 metric tonnes in Main factors contributing to agricultural productivity growth include research and development, extension, education, infrastructure and government programmes.
Obviously, weather is a major, unpredictable factor affecting year-to-year variation in productivity, but other external shocks to the economy also indirectly affect relative prices and resource allocations in agriculture. Farmers are sensitive to changes in the relative prices of inputs. For example, if the price of labour increases relative to the price of capital because labour becomes more scarce relative to capital, or because of general wage increases in the non-agricultural sector , farmers will try to use more capital in place of labour.
This change in relative prices may also induce private firms for example, farm machinery companies to develop new technologies that save on the relatively more expensive input. Prices received and paid by farmers During the to period, while the prices received by producers fluctuated somewhat, overall levels changed little Figure 1. Since then, these trends have been reversed, with prices paid increasing at faster rates and outpacing prices received. The cost-price squeeze began in and has increased since then, particularly after Yet, the efficiency gains that resulted from rapid productivity growth have facilitated the maintenance of production increases even in the face of the cost-price squeeze.
Rising energy prices, for example, mean increased input costs for farmers. Results from an ERS study Harris et al. However, higher energy costs also mean increased prices for fertilisers and chemicals. This definition has remained unchanged since It would be more appropriate to make the comparison between farm households and other small business-owning households, but such data are unavailable.
In contrast to mean income values, estimates of median income values are not influenced by unusually large or small values. In addition, productivity growth is a more important source of output growth in agriculture than it is for other industries. For example, while output growth in agriculture was entirely the result of productivity growth, output growth in the rest of the business economy was largely the result of growth in inputs Ball et al. This chapter offers a brief review of the policy background and then evaluates the evolution of agricultural support during the past 25 years.
The US Congress regularly enacts legislation that amends the provisions of the permanent law through various Acts, also known as Farm Bills, the latest form of such legislation being the Food, Conservation and Energy Act of the Farm Act , which became law in June Jones, Hanrahan and Womach, Although the various Farm Acts all give most prominence to the issue of farm income and commodity price support policy, they actually encompass a much wider range of concerns related to agriculture, including agricultural trade and foreign food aid, conservation and environment, forestry, domestic food assistance primarily food stamps , agricultural credit, rural development, agricultural research and education, and marketingrelated programmes.
Originally, commodity programmes were designed to stabilise and boost farm income through the provision of price and income support for a specific list of commodities, to aid economic recovery and development during the Depression and post-war eras. This was achieved through a combination of taxpayer-funded production payments and supply management, in the form of acreage limits and commodity storage programmes. Since then, agricultural policies have been amended to address additional objectives.
Over time, increased concern over the federal budget deficit strengthened pressure for agricultural policy reform. For example, beginning with the Farm Act, and continuing with farm legislation passed in and , the United States undertook major initiatives in domestic agricultural policy reform, including the elimination of deficiency payments and the introduction of Production Flexibility Contracts PFC under the Farm Act Annex A; Box 2.
There was a gradual shift away from production controls and price supports as the primary instrument of policy for crops, and towards the increasing use of budgetary payments, culminating in the ending of the supply management commodity programmes in the Farm Act. The policy debate concerning the Farm Act took place against the backdrop of the Doha round of multilateral trade negotiations during which, discussions on farm subsidies led to the US being challenged as to the legality under the existing trade rules of some of its support programmes, particularly for cotton — and of a high federal budget deficit.
More than two-thirds of the funds are projected for domestic food assistance programmes, with the overwhelming majority financing the Supplemental Nutrition Assistance Program SNAP previously the Food Stamp Program.
Evaluation of agricultural policy reforms in the United States (eBook, ) [theranchhands.com]
Key features of the Farm Acts since cont. However, the real cost of the Farm Act is unpredictable, because the amount actually paid out varies with average annual market prices and crop yields. For example, higher commodity prices would lead to smaller price-related payments than otherwise would be the case.
Although successive Farm Acts have set down parameters and guidelines for policies for a specific number of years, the process of agricultural policy making is relatively continuous. For example, Congress has provided ad hoc emergency and supplementary assistance under separate legislation, such as the emergency payments made over and the American Recovery and Reinvestment Act of Box 2.
Moreover, many of the federal programmes that currently support renewable energy production in general, and agriculture-based energy production in particular, are outside the purview of USDA and have legislative origins unconnected to the Farm Act. Around USD 28 billion 3. An estimated USD The remaining USD 7.
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The American Recovery and Reinvestment Act of cont. In the first year of implementation, the key landmarks include: In , the remaining funds were to be allocated to the following areas: Evolution of agricultural support Transfers to producers On average, US support levels to producers are relatively moderate in comparison with average levels in other OECD countries Figure 2.
Overall, although US support levels for agriculture have varied widely over time and across commodities, the evolution of the Producer Support Estimate PSE and related support indicators clearly indicate a substantial decrease since Figure 2. A feature of US support levels is that they move inversely with world commodity prices.
Since , support in the US has peaked twice. The first peak occurred in and the second lasted from to Figure 2. Both peaks occurred at times when world commodity prices were depressed in terms of US dollars. Support levels subsequently declined somewhat and then fell to relatively low levels, when world prices rose rapidly. However, the price increase was temporary and US support increased markedly in the late s, reaching record levels in nominal terms and very high levels relative to the value of production.
Likewise, the record high commodity prices witnessed in and led to very low levels of support. On the other hand, budgetary support has slightly increased, mainly due to the increase in payments that do not require production and, to a lesser extent, due to the increase in input payments. Increases in these two forms of support more than offset the decrease in payments based on current parameters and payments based on output. On average, over the period, the main form of support has been output-based, although it has declined significantly since Figure 2.
Moreover, payments based on noncommodity criteria are also important in the United States, and are mainly composed of payments based on long-term resource retirement e. The majority of support payments are made with conditions attached, primarily environmental. By , these payments accounted for half of total producer support and in the main represented support not requiring commodity production Figure 2.
Counter Cyclical Payments, Direct Payments and Production Flexibility Payments is reflected in the decreasing share of support directed at specific commodities. While market price support dominates for sugar, dairy and sheepmeat, payments based on output represent the most important form of support for cotton.
This is primarily attributed to domestic food consumption aid, particularly food stamps. General support to the agricultural sector Support provided to the sector as a whole, as opposed to individual producers, is measured by the General Service Support Estimate GSSE indicator. The overwhelming majority of GSSE expenditures are for marketing and promotion primarily the post-farmgate share of domestic food assistance costs , which accounted for over three-quarters of total GSSE expenditures in Figure 2.
Total support to the agricultural sector Total support provided to the agricultural sector as a whole is measured by the Total Support Estimate TSE. In , total support to agriculture represented 0. Evolution of support to General Services, Miscellaneous Research and development Inspection services Infrastructure Marketing and promotion USD million 60 50 40 30 20 10 0 Source: Countries are ranked according to levels. For Mexico, is replaced by Distribution of commodity support Diversity within the farm sector results in an unequal distribution of all government payments including commodity and conservation programmes.
The allocation of government payments depends on a number of factors, including farm size area , location and types of commodities produced. A large majority of farms do not receive government payments and are not directly affected by farm programme payments. Nevertheless, these farms — and the households that operate them — may still be affected indirectly by the impact of government payments on farmland values and commodity markets.
Even for farms that receive payments, government payments typically represent a small share of gross farm income revenue from farming activities, and government support payments and an even smaller share of farm operator household income. The relative importance of government payments in gross cash income is disproportional to farm size i. The amount of government payments varies by the sales classification of the particular farm operation. Average payment per farm increased as farm sales increased, with farms generating over USD 1 million in sales receiving USD 75 , on average.
Most payments are received by larger farms as commodity production is concentrated on larger farms Figure 2. The largest of the commercial family farms those with gross annual sales of USD or more received The concentration of government payments to higher-income households has increased over time.
As shown in Figure 2. Overall, to the extent that there is some perceived low income problem that provides a rationale for government payments, the above analysis suggests that payments are not being distributed in a way which targets those farmers with income problems. The skewed distribution of government payments for the programme crops in favour of farms with high sales and incomes is also observed for the dairy sector.
Distribution of conservation payments Distribution by size and farm typology As shown in Figure 2. Many farms that received conservation payments also received commodity programme payments and other forms of government support. Conservation payments and payments from commodity-related programmes go to different types of farms. While price and income support payments are concentrated among larger farms, smaller farms and rural residence farms which include retirement farms are much more dependent on conservation payments as a source of income than other farms.
Smaller farms tend to enrol a larger share of their farming operations in conservation programmes, particularly whole-farm enrolment in CRP, and operators of these farms often receive a larger share of their household income from land retirement payments and non-farm sources. Of the farms receiving conservation payments, rural residence farms accounted for the largest share. Compared with rural residence and intermediate farms, a larger percentage of commercial farms received conservation payments, but these payments represented a smaller share of total government payments and gross cash income.
Twenty-seven per cent of all farm households receiving conservation payments had household income of USD 50 Using an index number approach developed by Anderson and Neary ; , the level and composition of support are combined to derive a single money-metric indicator of the impact of support with respect to a specific outcome — here, farm income, quantity produced, and value of exports. The process works like this: By imposing a policy scenario where all other forms of support are removed, the model finds the amount of MPS that holds the selected outcome constant, yielding the desired measure of equivalency.
Payments involving input constraints, such as the Environmental Quality Incentives Program, or policies whose payments are based on non-commodity criteria, such as the Conservation Reserve Program, are not included in the model. Policies of this type have complex impacts that cannot easily be analysed within PEM, and are of increasing importance in terms of the PSE Figure 2. Nonetheless, the main support polices of the US are included in the present analysis. Beyond tracking the changes in level and composition of the PSE, these measures also take into account how support is distributed across commodities, capturing the often complex cross-effects of policies between markets.
Generally, support that is more evenly distributed across commodities tends to be less distorting and more transfer efficient, but this rule of thumb can be affected by the particulars of market interactions, such as the feed market connecting crop and livestock producers, and the cross-elasticity of demand for commodities, to name only two.
The iso-index approach is helpful in resolving this uncertainty by measuring the impact of all forms of support in terms of an equivalent amount of MPS. The iso-export index measures the effect of US support programmes on export value, demonstrating that the effect is greater than that implied by the NPC, but less than that of the NAC which implicitly treats all support as equal to MPS Figure 2. The iso-income index measures the amount of market price support required to achieve the same increase in farm income as that obtained by the policy set.
As market price support is generally less transfer-efficient than other policies, more is required to achieve the same effect. The opposite is true for production and trade impacts of support, as MPS tends to be one of the most distorting forms of support. Calculating these indices as a percentage of the PSE provides an indication of the relative efficiency of the policy set at delivering increased farm income and its potential to distort markets.
For the iso-income index, the upward trend evident after is evidence of increasing transfer efficiency of the policy set. The year stands out in the data, appearing as unusually market-distorting and transfer inefficient, but that year is in fact one of low budgetary payments. Deficiency payments decline strongly from to , while PFC payments do not begin until When expressed as a percentage of the PSE, the iso-indicators show the impact of changes in the composition of support, but not its level.
Looking at the iso-index in level terms, the period of greatest support and market impacts is , when the level of support surged due to higher loan deficiency payments and crop market loss assistance payments Figure 2. The iso-production index shows that the distortiveness of support in the United States increased into the mids and declined steadily thereafter. The increasing importance of Category E payments which do not require production is driving this movement towards lower overall production distortion.
The model treats the riskreducing effects of the loan rate and Counter-cyclical Payments CCP as increasing the incentive price for the producer, which contributes to marginally higher values of the index in years where prices are low and these policies have the maximum impact. The set of policies in the earlier study period, from to the early s, were nearly as transfer efficient as those in later years, even though, as the iso-production index shows, they were slightly more distorting.
The deficiency payments made on the basis of land were very transfer efficient, as they directed payments to farmer-owned inputs land in a way that made land more attractive to producers than purchased inputs. The relative expansion in land use shifted the input mix towards farm-owned inputs which deliver welfare to the producer and away from purchased inputs. Overall, the difference between the iso-production and isoexport indices has to do with the impact of policies on consumption, as exports are essentially the excess of production over consumption.
It is expected that the iso-export index will be lower in absolute value than the iso-production index as MPS has a strong impact on consumer behaviour relative to other policies, and so will have a larger impact on exports than production. The downward trend in the later part of the period is more pronounced in the iso-export index, although the difference is not dramatic.
Overall, the results indicate measured progress in improving the transfer efficiency and reducing the market distortions provoked by agricultural policy, after Over the entire time period the improvement has been modest. Part of the explanation for this is the already-high level of transfer efficiency, which limits the potential for further gains. Relatively more progress has been made on reducing the production-distorting effects of policies, especially with respect to exports.
There remains room for improvement in the area of reducing production distortions; in particular by reducing MPS, which continues to form a large share of the PSE. Risk effects Several US policies are designed to have a counter-cyclical effect related to commodity prices. The iso-income index, including the risk effects of the loan rate and counter-cyclical payment, exceeds the index excluding risk effects by an amount that varies but is typically less than 0.
Commodity prices were low in , and the greatest impact of risk-reduction occurred in that year, which had a 1. PNPC is the ratio between the average price received by producers at the farmgate , including payments per tonne of current output and the border price at the farmgate. Analysis of the impacts of US agricultural support policies on the risks faced by farmers — and therefore on production, income and trade — may vary under alternative assumptions. Briefly stated, the model presumes a risk-averse utility function of the mean-variance type, where policies may affect the variance of revenue through their negative co-variance with prices.
This, in turn, impacts the risk premium demanded by producers to accept uncertain prices. Specifically, reducing the net variability of prices is equivalent to a higher price according to a risk-aversion parameter. Consider a bet determined on the tossing of a coin, where one wins X when the toss is heads, and loses X when the toss is tails. The risk premium is the amount an individual would pay to avoid having to participate in the coin toss, expressed as a percentage of X. This chapter looks in detail at these support policies and their impact on certain sectors.
It focuses, in particular, on support for sugar. As required under the previous legislation, participants who receive commodity payments must continue to respect the requirements of conservation compliance. Direct payments are fixed and do not vary with current crop production or price. Payment rates vary by crop. The Farm Act set fixed payment rates on a per-unit basis for and producers were given the option of updating their area bases.
Under the Farm Act, direct payment rates per eligible crop i. However, for the crop years , payments will be made on only The reduction to Provision of advanced Direct Payments is eliminated in the crop year and thereafter. When effective market prices exceed the target price, no payment is made. Like DPs, CCPs are based on area and yield bases, but their payment rate varies inversely with current market prices. As with DPs, the farmer is not obligated to produce any of the covered commodities in order to receive the payment.
The CCP programme is continued under the Farm Act, but target prices were adjusted and some additional commodities were included Table 3. Support levels for countercyclical payments are adjusted, with many crops receiving increases, and support for cotton being reduced slightly.
Beginning with crop year , CCP payments are available for pulse crops, namely dried peas, lentils, and both small and large chickpeas. The Farm Act maintains target prices at previous levels for and , with the exception of upland cotton, whose target price is reduced 1. Existing target prices are maintained for maize and rice over Crop year periods vary between different commodities. Base acreage and payment yield for direct and counter-cyclical payments remain the same as under the Farm Act. Marketing Assistance Loan Program Under the Marketing Assistance Loan ML Program, producers of specified crops can receive a loan from the government, using crop production as loan collateral.
The primary aim of the programme is to provide interim financing to producers to meet cash flow needs at harvest time, while at the same time allowing them to store production for sale at a later date, when prices may be higher. The farmer taking the loan deficiency payment remains free to sell the crop on the open market.
The loans are non-recourse, in that the collateral can be forfeited at the end of the term without penalty, even if the market price of the commodity at repayment is less than the loan rate. Interest is also forgiven on loan forfeitures. Unlike the CCP, marketing assistance loan benefits are paid on current production of the specific programme commodity. Commodities eligible for marketing assistance loans and loan deficiency payments include all of the commodities eligible for DP and CCP, plus extra-long staple ELS cotton, wool, mohair and honey.
The Farm Act continues the non-recourse marketing loan programme under the same framework as the previous Act, but modifies coverage, levels of payment and payment limits Table 3. The loan rate has increased for eight out of twenty commodities wheat, barley, oats, minor oilseeds, graded wool, honey, cane sugar and beet sugar ; decreased for two dried peas and lentils , and has become applicable to one additional commodity large chickpeas.
Repayment rates may be modified in the event of severe disruption to marketing, transportation or related infrastructure. Marketing loans are authorised for ELS cotton for crop years , but the loans must be repaid at the established loan rate plus interest. The Farm Act re-authorised the provision of commodity certificates only for the crop years. Certificates were a loan repayment option. They were issued by the CCC and could be purchased at the posted county price for wheat, feed grains and oilseeds, or at the effective adjusted world price for rice or upland cotton, for the quantity of commodity under loan.
The producers then exchanged them for the collateral, and thus repaid the loans. Certificates were used mainly during the mids in lieu of cash to compensate programme beneficiaries and to reduce the large, costly and price-depressing commodity surpluses held by the CCC. Unlike traditional farm programmes, the ACRE programme provides farmers with protection against revenue loss for each crop, regardless of the cause price decline, yield loss, or some combination of the two.
Enrolled farmers receive payments when revenue from programme crops including peanuts falls below levels determined from moving averages of past yields and market prices. More specifically, in order to qualify for an ACRE payment, two triggers must be met: The second trigger ensures that farms will not receive payments should the state as a whole but not the individual farm sustain a loss in revenue for the crop. Benchmark yields at the state and farm levels are calculated from averages for the previous five years, with the highest and the lowest excluded, while national average market prices are calculated from the previous two years.
If both triggers are met, a producer will receive an ACRE payment calculated as the difference between the state's actual revenue and the ACRE guarantee per acre, multiplied by a percentage If the area planted is greater than the base, the farmer elects which planted acres to enrol in ACRE. In this respect, the ACRE programme is a closer match with current plantings than both the DP and CCP programmes, which use historical base acres for calculating payments.
The programme applies to all DCP crops on the farm, and payments for each crop are calculated separately. A farmer who operates more than one farm administrative unit is permitted to enrol or not enrol each one separately in ACRE. Importantly, once a farm is enrolled, all the crops on the farm come under the programme and must remain so for the duration of the Act.
Enrolment can begin in any of the years from Another key feature of ACRE is that, by using a recent average of farm prices and yields for calculating the programme guarantees, the programme provides a moving income support level, rather than one that is fixed over time, as occurred under traditional programmes. As a result, the guarantee level for a given year depends on the prices and yields in the years immediately preceding it. The payment rate will be reduced to USD 66 per tonne on 1 August Support can be used only for acquisition, construction, installation, modernisation, development, conversion, or expansion of land, plant, buildings, equipment, facilities, or machinery.
Payment limits Two types of payment limits exist for farm commodity programmes: The Farm Act makes several changes to payment limits, some by tightening the limits and others by relaxing them. ACRE payments do not have a separate payment limit: Payment limits on marketing loan benefits and loan deficiency payments are abolished. Under the Farm Act an exception to the AGI limit was made in cases where a certain proportion of income has been earned from farming sources: If a three-year average of non-farm adjusted gross income exceeds USD , then no programme benefits are allowed DP, CCP or marketing loan assistance.
Higher-income producers, with an adjusted gross farm income of more than USD averaged over 3 years , are not allowed DP, but continue to receive CCP and marketing loan assistance benefits. Planting flexibility for fruits and vegetables for processing As described above, under the DP and CCP, farmers may plant crops other than the programme crop and still be entitled to receive direct payments — this is known as planting flexibility. Double cropping of fruit, vegetables and wild rice was permitted without loss of payments if region had a history of such double cropping. The Farm Act retains the overall provision on planting restrictions for fruits, vegetables and wild rice, excluding mung beans and pulse crops dried peas, lentils and small and large chickpeas on base area.
Farmers in these states are allowed to plant base area to cucumbers, green peas, lima beans, pumpkins, snap beans, sweet maize and tomatoes grown for processing. Their base acres are temporarily reduced for the year concerned resulting in lower direct and counter-cyclical payments , but restored for the following crop year. Participation is limited to producers with processing contracts, and the amount of acreage eligible for the programme is limited for each state. Insurance and natural disaster payments The federal government provides subsidised insurance coverage against losses caused by natural disasters, price fluctuations and revenue shortfalls for crops.
Under the Federal Crop Insurance Program, producers may select between yield or revenue insurance. Insured producers receive a payment when actual yield or revenue falls below an expected level. In recent years, an increasing proportion of risk protection has been provided by revenue insurance, which protects against shortfalls in both yields and prices. Producers participate in the Federal Crop Insurance Program on a voluntary basis. Crop insurance is delivered to producers through private insurance companies, which are partially reimbursed for their delivery expenses and receive underwriting gains in years of favourable loss experience.
Evaluation Of Agricultural Policy Reforms In
The government costs associated with the Federal Crop Insurance Program include: The agricultural commodities eligible for insurance are predominantly crops as opposed to livestock. According to the USDA, in the Federal Crop Insurance Program provided coverage to over crops, covering more than three-quarters of planted acreage in the country million acres.
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Of the USD 4. The Farm Act formalises the ad hoc measures used to provide disaster assistance by establishing an Agricultural Disaster Relief Trust Fund to finance agricultural disaster assistance to be available on an ongoing basis over the FYFY period through five new programmes. The Supplemental Revenue Assurance Program SURE , which is the largest of the five programmes funded by the Trust Fund, is designed to supplement the protection producers can purchase from private crop companies.
Unlike previous natural disaster assistance programmes, SURE encompasses the entire farm and all the crops produced on it in determining a target level of revenue. The target level of revenue is based on the amount of crop insurance coverage selected by the farmer: In addition, SURE participation requires insurance for all crops — with an exception made for , when producers had the opportunity to obtain a waiver through a buy-in provision.
The other four additional disaster programmes authorised under the Farm Act aim to provide assistance to livestock, forage, and orchard and nursery tree producers until FY The first three programmes are similar in application and benefit levels to previous ad hoc disaster programmes. Except for the Livestock Indemnity Program, these programmes require prior insurance from either crop insurance or the non-insured crop disaster assistance programme. Arrangements apply from to , but farmers who had not taken out crop insurance for when the new Farm Act came into force had the option to buy into the programme for by paying an administrative fee.
First, DP, CCP and ACRE payments to farms with fewer than four hectares are now prohibited, unless the farm is owned by a socially disadvantaged or limited-resource farmer or rancher. Prior Farm Acts had eliminated base acreage only for land developed for non-agricultural commercial or industrial use. Sugar support policies Policy background The United States is a large net sugar importer.
Support and protection for the US sugar sector is substantial. Whereas support to programme crops discussed earlier is primarily financed through budget outlays, support for sugar is provided primarily by maintaining domestic market prices at levels that are well above world market prices. In other words, the high level of support received by the US sugar industry is funded directly by sugar users, who pay domestic market prices far in excess of world market prices. The origin of the current sugar support programme can be traced back to the legislation in the Agricultural and Food Act of The sugar support programme has since been re-authorised, and some modifications have been made in successive Farm Acts.
Key elements of the sugar support programme include: Domestic price support A key objective of the support policy for sugar is to maintain internal US prices above the price at which processors would have the incentive to forfeit sugar under loan to the CCC. Under the Farm Act, price support loans are extended to sugar processors who meet certain requirements concerning the transmission of benefits from the programme to producers of sugar cane and beet.
Through the CCC the government provides loans to processors of domestically grown sugar crops to enable them to hold stocks. Raw cane sugar and refined beet sugar are pledged as collateral. For refined beet sugar, the loan rate remained at its previous level of USD per tonne. From FY to FY, the rate was set at During the course of the marketing year, USDA is required to adjust allotment quantities to avoid the forfeiture of sugar under certain circumstances.
Overall allotment quantity allocations are divided between refined beet sugar Beet sugar processors are assigned allotments based on their sugar production in crop years The Farm Act sets out allocation conditions for new entrants and for the sale of factories between processors. It also states that sugar forfeited to the CCC counts against marketing allotments made in the year in which the loan to the processors was made. Tariff rate quotas At the outset, it should be noted that the trade policies that constitute a major feature of US sugar policy are not included in the Farm Act because tariffs are set under legislation that implements international trade agreements.
US commitments under international trade agreements affect the level and allocation of TRQs.
Tariff rate quotas permit imports up to the stipulated levels to enter at duty rates that are below the rates that would otherwise apply. Tariffs on over-quota imports of sugar are high, in order to maintain high internal support prices without the need for excessive government stockholding.
The in-quota tariff for sugar is equal to USD The over-quota tariff is USD In addition to the over-quota tariffs, there are safeguard duties based on the value or quantity of the imported sugar. Currently, these duties are based on value. For refined and specialty sugar, the TRQ was set at 90 metric tonnes 99 short tons raw value. This amount includes the WTO minimum amount of 22 metric tonnes, of which 1 metric tonnes are reserved for specialty sugar, as well as an additional 68 metric tonnes for specialty sugar to accommodate a rapidly expanding organic food sector.
The United States also operates the Refined Sugar and Sugar-Containing Products ReExport Programs to allow US refiners and food manufacturers to be more competitive in the global markets for refined sugar and sugar-containing products. More specifically, USDA is now required to purchase US-produced sugar in quantities roughly equal to the amount of excess imports, in order to avoid forfeitures of sugar under loan to the CCC.
The sugar purchased must then be sold to bio-energy producers for processing into ethanol. Purchases of sugar from processors would be made through competitive bids, at prices not lower than support levels under the sugar programme. Sugar processors are eligible to receive non-recourse loans, but are not eligible for marketing loan benefits.
While national-level loan prices are set by the Farm Act, USDA adjusts the national average loan rate to local usually county loan rates to reflect spatial difference in markets and transportation. For example, RMA enables some producers to purchase income insurance protection against losses of pasture, rangeland and forage. This provision would also result in reducing the cost of the programme.
This chapter examines livestock sector support policies, focusing on the dairy industry. Policy background Livestock and the production of livestock products account for about half of total farm cash receipts and for almost one-fifth of total agricultural exports Annex Tables E. The United States is a world leader in the production, consumption and export of meat and poultry products.
Consolidation and vertical integration are the key features that characterise the rapid changes that have taken place in the structure and business organisation of the livestock sector over the last three decades see Section 1. With the exception of milk, wool, mohair and honey, few federal farm policies grant direct support to livestock producers. Nor, in most cases, do they qualify for federal crop insurance, although there is some limited participation by cattle, dairy and pig producers in livestock revenue insurance programmes.
They have benefited from ad hoc assistance to recover losses caused by natural disasters such as droughts and hurricanes and, on occasion, from assistance for the destruction of animals for disease control purposes. A variety of federal farm programmes, regulations and policies affect livestock production indirectly because of their wide-ranging effects in the areas of feed grain prices, bio-fuel development, land use, environmental concerns, risk management, market structure and international trade.
For example, incentives that divert maize from feed uses into ethanol production can significantly increase feed prices and, consequently, production costs. Likewise, compliance with environmental and food safety regulations has an important bearing on the sector. As livestock farming increasingly concentrates into larger, more productionintensive units, concerns arise about the effects on the environment, including degradation of surface water, groundwater, soil and air. Operations that emit large quantities of air pollutants may be subject to regulation under the Clean Air Act.
The livestock-related provisions of the Farm Acts typically pertained to contracting and other business relationships between producers and meat packers; farm animal health and welfare regulation; and the marketing and safety of meat and poultry Johnson and Becker, The Farm Act also includes provisions that: Food safety and marketing issues related to livestock products are discussed in Chapter 10, Food safety, marketing and other policies. Disaster assistance programmes for livestock producers are discussed in Chapter 3, in the sub-section on Insurance and natural disaster payments.
The following section focuses on support policies for the dairy sector. Technological change, economies of scale and increased productivity have led to a large concentration of production: Advances in transportation and storage technologies have greatly reduced the marketing problems associated with milk perishability. Additionally, consumer demand for dairy products is growing more slowly than milk production capacity, thereby challenging the relevance of one of the original goals of the dairy support programme — to ensure an adequate supply of fluid milk.
Dairy policies and programmes have been modified over time, but the underlying general objectives remain unchanged: More specifically, dairy policy in the United States has historically been aimed at addressing three main issues: This policy response has resulted in the development of a complex array of programmes, both at federal and state level.
The main elements of dairy policy comprise a system of geographically-based price discrimination and pooling schemes federal and state milk marketing orders ; a counter-cyclical producer payment programme the Milk Income Loss Contract Program ; a price support programme implemented by government purchase of dairy products the Dairy Produce Price support Program ; a tariff-rate quota for most dairy products to restrict imports import barriers ; and a small export subsidy programme the Dairy Export Incentive Program for a few manufactured dairy products in certain years particularly the mids.
Federal and state governments also have a tradition of credit, food safety, environmental and land-use zoning regulations or incentives that have a bearing on the dairy industry, and government programmes designed to provide domestic and international food aid have an additional effect. The farm price of approximately two-thirds of farm milk is regulated under federal milk marketing orders. In addition, in lieu of participation in the FMMO system, a few states operate their own independently administered marketing orders e.
Although the specificities of FMMOs have been modified since their inception in the late s under the Agricultural Marketing Agreement Act of , their two principal elements — price discrimination and revenue pooling — have remained largely unchanged. Their main roles continue to be to: A system of classified prices currently based on four classes of milk establishes minimum prices for the end products.
The price of milk used for fluid consumption Class I can vary significantly across marketing orders and attracts the highest minimum price. Fluid milk prices Class I are determined by adding to a monthly base price a location differential — this varies from region to region according to local supply and demand conditions and is based on price incentives necessary to draw milk from surplus regions to deficit regions. This is because the demand for fluid milk Class I is less elastic — i.
Moreover, revenue pooling effectively subsidises the production of milk for manufacturing uses, resulting in a lower price for consumers of cheese, butter and milk powder, and lower prices to producers for Class II, III and IV milk. Thus, the elements of the Farm Act relating to FMMOs focus on processes under the system's regulations — not on major programme changes. The Farm Act called for several changes in milk marketing orders, including consolidation of the then-existing 31 orders by , the number had been reduced to ten.
The Farm Act also authorises a dairy forward pricing programme to be administered in a similar manner to a previous temporary pilot programme. The provision allows new contracts to be entered into until FY Any payments made by milk processors under the contract are deemed to satisfy the minimum price requirements of federal milk marketing orders. The Milk Income Loss Contract Program In contrast to crop farmers, dairy farmers have not traditionally been recipients of direct government payments.
However, the dairy sector was one of the main beneficiaries of the ad hoc emergency assistance provided over FY, receiving a total of USD 1 billion. Under the Farm Act these ad hoc payments were institutionalised with the creation of a new counter-cyclical national dairy market loss payment programme, the Milk Income Loss Contract MILC. Like US crop programmes, the MILC provides direct payments to dairy producers when prices decline below a specified level, but — unlike countercyclical programmes for crops which are paid on a percentage of historical production — MILC payments are based on current production up to a specified limit.
All dairy producers are eligible. MILC payments are made on quantities up to a given amount of milk marketed per farm, for months when the fluid milk price in the Boston marketing order falls below a benchmark level up to a given annual amount of milk. Although the same benchmark price is maintained, both the production payment limit per farm and the rate of payment are increased for the period from 1 October to 31 August Over that period, the production limit per farm is set at 1. After 31 August , the production limit per farm reverts to 1. The United States maintains an array of agricultural policies with goals that range from the traditional objectives of stabilising agricultural production and supporting farm income to those that have more recently increased in importance, such as assuring adequate nutrition, securing food safety, encouraging environmental protection and facilitating rural development.
This study analyses and evaluates US agricultural policies, focusing on the Food, Conservation, and Energy Act of , in the context of developments in agricultural policy that have taken place in the United States since It looks closely at five US Farm Acts: This study also discusses several emerging issues and challenges for US agricultural policies, and offers key policy recommendations. Please choose whether or not you want other users to be able to see on your profile that this library is a favorite of yours.
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