Agriculture and the Great Plains: the impact of changes in agricultural policy

Abstract

Due to budget constraints, two policies that will be discussed in the 1995 farm bill debate are the conservation reserve program (CRP) and the target price program. The major objective of this study, therefore, was to evaluate the impacts of policy changes in both the CRP and target price programs on the Great Plains. Specific attention was placed on economic impacts and interaction between the programs on agricultural sector and farm level variables. Utilizing an agriculture sector model (AG-GEM) and a farm level model (FLIPSIM) four policy options involving combinations of eliminating and retaining CRP with and without a 10 percent reduction in target prices were evaluated. It was found that the Great Plains receives more farm subsidies relative to its share of production than for the United States as a whole. Moreover, while the United States experienced a net welfare loss from alternatives such as a continuation of CRP, both the Great Plains states and counties experienced a net gain in the absence of target price reductions. Based on the farm level results, major structural adjustment will be necessary for many moderate size farms if agricultural expenditures are decreased. Large farms consistently displayed stronger economic performance than their moderate size counterparts. Results suggest that specialized Great Plains wheat farms are financially extremely vulnerable both to the elimination of the CRP and reduced target prices. For moderate size farms ma or restructuring will be required regardless of what is done with CRP. Retaining CRP, however, provides more time for adjustment to occur and results in less erosion of equity. Larger and more diversified farms tend to remain in a financially sound condition regardless of decisions on CRP. It can be assumed that due to their dependence on farm programs, the Great Plains farms are representative of other U.S. farms that are highly dependent on farm subsidies and are most likely to be profoundly impacted by policy changes.