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An Economic Assessment of a Margin-Based Program for Crops
Abstract
The United States has provided a safety net to agricultural producers since the first comprehensive agricultural and food policy legislation was enacted in the 1930s. Since 2014, the farm safety net has relied on two key commodity programs: Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC). PLC seeks to mitigate price risk, and ARC seeks to mitigate both price and yield risk. Neither program accounts for the variability in the costs of production.
The primary objective of this study was to evaluate the implications of a margin-focused safety net program for crop producers in the United States. A secondary objective was to evaluate the effects of incorporating different costs in establishing the margin.
A hypothetical national-level margin program was created based on the structure of the Dairy Margin Coverage Program and established benchmark margins under three different scenarios using different cost configurations. Payments were stochastically simulated to provide 500 different payment outcomes under each scenario for corn, cotton, rice, soybeans, and wheat. Payments were then applied to four model farms that represent major crop production across the United States, and net cash farm income was compared to the baseline ARC or PLC election.
Results indicate that payment amounts, payment likelihoods, and ultimately net cash farm income on each model farm varied significantly. The wheat farm favored the baseline, the cotton farm favored the margin-based approach, and the corn, rice, and soybean farms showed mixed results.
Subject
agricultural policyCitation
Wakefield, Helen Cartwright (2023). An Economic Assessment of a Margin-Based Program for Crops. Master's thesis, Texas A&M University. Available electronically from https : / /hdl .handle .net /1969 .1 /200168.