The impact of the 1977 Food and Agriculture Act on cotton production in the United States : a simulation of policy alternatives

Abstract

This study estimates the probable impacts of seven alternative cotton policy scenarios on the crop production industry in the Cotton Belt region of the United States. A belt-wide, regional linear programming model of crop production is used to estimate regional acreage and production of cotton and other important crops under each cotton policy scenario. The regional linear programming model of crop production also estimates the level of producer participation in various crop programs, the cost of crop programs, and net farm income for each cotton policy scenario. The results of the linear programming crop production model are used to construct piecewise linear cotton supply functions for each cotton policy scenario. These piecewise linear cotton supply functions are combined with an econometric cotton demand function to calculate equilibrium cotton price, domestic consumption, exports, and government stocks under each cotton policy scenario. The social values of alternative cotton policy scenarios are evaluated on the basis of changes in consumers' surplus plus producers' surplus minus government payments. Changes in net economic surplus are computed by subtracting net economic surplus forthcoming when no government programs are available for cotton, from that forthcoming under each cotton policy scenario. Positive changes in net surplus indicate that a policy scenario improves net economic surplus relative to a free-market scenario and negative changes indicate that a policy scenario lowers net economic surplus relative to a free-market scenario. The major findings of the study are that: (1) voluntary supply control programs that offer producers financial incentives for participation, but do not penalize them for nonparticipation, are not able to hold production below the level forthcoming in the absence of government crop programs, and (2) under a target price/ set-aside program, the greater the amount by which target price exceeds equilibrium price, the lower the value of net economic surplus will be for that program.