Do “Decoupled” Payments Affect U.S. Crop Area? Preliminary Evidence from 1997–2000

Abstract

The Federal Agriculture Improvement and Reform (FAIR) Act of 1996 changed the manner in which the U.S. government provides direct payments to U.S. farmers. Under the FAIR Act, producers are eligible for fixed production flexibility contract (PFC) payments independent of the production of specific crops. With a few exceptions, supplemental market loss assistance (MLA) payments authorized in subsequent legislation have been made to producers under similar terms; i.e., a producer cannot increase or decrease MLA payments by increasing or decreasing production. The present analysis does not investigate all the possible ways in which PFC and MLA payments might affect production, but rather focuses on the effect of payments on the total area devoted to production of major field crops. Because the payments are not contingent on the planting of particular crops, it seems likely that any effect of the payments on crop mix will be small and difficult to disentangle from all the other factors that drive decisions to plant one crop instead of another. Similarly, while PFC and MLA payments could impact the input decisions that affect crop yields, weather and other sources of yield variability make it difficult to isolate what is likely to be a small payment effect from aggregate yield data. This is particularly true given the limited number of years available for observation.