A County Level Analysis of 2014 Farm Bill Commodity Payments

Seth Cole Boone, Purdue University

Abstract

United States commodity policy was subject to a large transition in how the federal government supports agricultural producers when the 2014 Farm Bill was passed in February of 2014. The new programs are the Agricultural Risk Coverage (ARC) and the Price Loss Coverage (PLC) programs. Methods used by the federal government to distribute farm income support have evolved from constant decoupled payments into programs that respond to agricultural market fluctuations, delivering payments that are inversely related to market performance. ^ The United States has a long history of government programs directly and indirectly supporting farmers and their income, dating back to the Great Depression and Dust Bowl eras. Over this time, the objectives of farm policy have had to meet varying needs, and have endured numerous iterations from their onset to today. Most recently the reforms of the 2014 Farm Bill redirected farm payments from constant income transfers to countercyclical payments which mimic insurance indemnities by paying out only when certain financial stress thresholds are met for a given area of the country.^ This thesis offers a study of 92 counties in Indiana covering corn, soybean, and wheat crop production representing the majority of Indiana crop revenue. The analysis predicts payment rates by county for the scheduled life of the 2014 Farm Bill commodity programs, 2014-2018. We adopt a baseline approach for extending the analysis forward beyond the period of known prices and yields, opting to calculate a relatively stable path analysis of programs under forecast equilibrium. This offers the advantage of seeing how the “memory” of the Agricultural Risk Coverage program carries forward in time with its basis in moving averages of revenue components.^ The 2014 and 2015 known payments are of considerable interest across the different crops in Indiana, providing the full range of outcomes and allowing direct contrast in payment streams for different counties. The scope of the analysis and the “natural experiment” of 2014 and 2015 price and yields across crops and space in Indiana allows for some generalizations on the efficacy of the 2014 Farm Bill’s programs in their support to agricultural producers and their ability to limit federal budget outlays. In both cases we focus on per acre payment rates at the county level against Direct Payments. ^ Our focus on payment rates gives us a basic unit for analysis that both facilitates decomposition into the factors that influence the payment rate as well as leaving aside the issues involved with appropriate aggregation methods over heterogeneous population with limited data. The analysis shows that the three crops in Indiana can generalize to 3 cases when comparing the two new programs (ARC and PLC) to the replaced direct payments (DP) but that these generalizations mask some distributional issues that occur in payment rates at the county level. The decomposition of payment rates among multiple dimensions (prices, yields, counties, programs, and time) permits examination of the full set of potential economic and political consequences of current and future instances of commodity support policy.^

Degree

M.S.

Advisors

Roman M. Keeney, Purdue University.

Subject Area

Agricultural economics

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