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Sector Level Analysis of Alternative Payment Limits

Sector Level Analysis of Alternative Payment Limits. Patrick Westhoff September 22, 2003 www.fapri.missouri.edu. Stricter payment limitations scenario policy assumptions. Each Census of Agriculture farm operation can receive no more than: $40,000 in direct payments

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Sector Level Analysis of Alternative Payment Limits

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  1. Sector Level Analysis of Alternative Payment Limits Patrick Westhoff September 22, 2003 www.fapri.missouri.edu

  2. Stricter payment limitations scenario policy assumptions • Each Census of Agriculture farm operation can receive no more than: • $40,000 in direct payments • $60,000 in counter-cyclical payments • $175,000 in marketing loan benefits • No generic certificates, loan defaults, or paper reorganizations to avoid limits • Stylized scenario—does NOT reflect specific legislation

  3. Other assumptions underlying the analysis • Farm consolidation has continued since 1997 Census • Effects of limits on CCPs and LDPs depend on prices • Producers will find ways to adapt to limitations over time • Assumptions and modeling approach are explained more fully in report

  4. Effects at 2004 baseline prices if producers do not adjust to limits (from Table 1 in the report) FAPRI estimates based on projected farm distributions, crop mixes, and payment rates.

  5. Proportion of cotton crop ineligible for payments if producers do not adjust (Fig. 1) FAPRI estimates based on projected farm distributions, crop mixes, and payment rates.

  6. Proportion of production ineligible for 2004 payments if producers do not adjust to limits (Table 2) Figures represent average of FAPRI results for 500 alternative futures.

  7. Effects of stricter limits on 2004 area planted and prices (Table 3) Figures represent average of FAPRI results for 500 alternative futures.

  8. Effects of stricter payment limits on cotton and rice area (Fig. 2) Figures represent average of FAPRI results for 500 alternative futures.

  9. Effects of stricter payment limits on 2004 cotton area at different prices (Table 4) Figures represent the average of 2004 area results for each price category from FAPRI’s analysis of 500 alternative futures.

  10. Possible impacts on other crops (from NFAPP at ASU) • Planting flexibility provisions • Deters entry into produce sectors • Payment limitations • Induces entry into produce sector? • Pros: Already, long term transition from cotton to produce (California); higher returns in produce. • Cons: More volatile returns in produce; high startup costs; lengthy establishment periods; contract production

  11. Possible impacts on other crops (from NFAPP at ASU) • Possible entry into produce • Cotton growing regions – California, Arizona, Georgia • Similar climatic requirements; existing infrastructure • Will it occur? • Potential impact • Likely very modest…

  12. Effects of stricter limits on average FY 2004-12 government farm program outlays (Table 3) Figures represent average of FAPRI results for 500 alternative futures.

  13. Effects of stricter limits on average 2004-12 farm income and land values (Table 3) Figures represent average of FAPRI results for 500 alternative futures.

  14. Concluding comments • Effects of payment limits are hard to estimate—many uncertainties • This analysis is of a stylized limitation—not of specific legislation • FAPRI tries to provide useful information, but does not support or oppose proposals • For more information, see full report at www.fapri.missouri.edu

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