AN ECONOMETRIC ANALYSIS OF AGGREGATE ACREAGE RESPONSE, PROGRAM PARTICIPATION AND LAND RETIREMENT

ROBERT LEWIS BANCROFT, Purdue University

Abstract

Since the 1930's, the federal government has taken an active role in influencing agricultural production. Federal involvement was prompted by the concern for the plight of American farmers, popularly referred to as the "farm problem". The farm problem was a result of a chronic misallocation of resources--namely, too much labor devoted to the production of food. This was manifested in excess supplies and concomitantly low food prices and farm income. The response of the federal government was visible in several programs designed to increase farm prices and improve returns to producers. These programs included price and income supports, and a set of instruments intended to restrict supply (allotments, diversions and/or set-asides). Producer planting, participation in commodity programs, and land retirement response are the subject of this study, based on commodity programs and market forces. A behavioral economic model was used to depict the cropland allocation process of an individual producer. This economic model was then aggregated over all producers, to describe the industry that then served as the basis of the statistical model for empirical testing. Participation equations for corn, sorghum, barley, and wheat were estimated. Equations designed to explain nonparticipation (market planting) were also estimated for these four crops, as well as for soybeans and oats. Each of the program participation equations performed well in explaining historical variations in program participation. The program participation equation for corn, followed sorghum, exhibited the best overall fit. Equations for barley and wheat, while explaining substantial variation in program participation, did not produce equally robust equations as corn and sorghum. The results of this analysis suggest further that the economic incentives to participate in commodity programs are reflected by the expected net returns per acre, with corn appearing the least sensitive to changes in expected net returns for participants. Liberalization of planting restrictions from 1971 to 1973 had an expansionary impact on participation for corn, sorghum and barley. To assess the effectiveness of supply restrictive programs on total acres planted, expected net returns for respective program participants in each commodity program were omitted and acres planted and idled were substituted. This enabled a measure of the expansionary or restrictive aspect of the programs. The analysis suggests that the corn and wheat programs had a slight restrictive impact on plantings, while sorghum and barley programs had an expansionary impact on plantings. In total, the performance of the model developed and presented suggests that it could potentially contribute to the understanding of how market and policy instruments influence producer planting decisions on an aggregate level. This suggests that each of the equations may be useful in assisting policymakers to design commodity programs that meet desired supply objectives, in a cost-efficient manner. That is, policymakers may be assisted in the development of appropriate monetary incentives (loan rates, diversion and deficiency payments), to elicit the necessary participation to satisfy the desired supply objectives.

Degree

Ph.D.

Subject Area

Agricultural economics

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