Implications of the full flexibility provision of the 1996 Farm Bill on regional planting

Abstract

From 1973 to 1996, for major program crops, the United States used a target price and a deficiency payment program to support farmers' incomes. Target prices were guaranteed levels of return on program acreage and yields. This "price'' was set by Congress and initially was estimated to be the average cost of production. The target price was used in conjunction with the market price and loan rate to set the amount of deficiency payment that a farmer would receive. The payment per unit was calculated as the lesser of the difference between target price and the market price or loan rate, whichever was lower. It soon became apparent to the Congress that budgetary pressures called for amendments to this program (Dobbs). Initial changes in policy separated the setting of the target price from the cost of production. In the 1985 Farm Bill, there were reductions in the target price, but for most years it was frozen. The effect of inflation was to lower the target price in real terms. The 1990 Farm Bill introduced the concept of flexibility. Framers were allowed to change their planting choice by utilizing the new Farm Bill provisions. However, previous to the 1996 Farm Bill, farmers had limited options for switching cropping patterns except to drop out of the program. One of the major innovations of the 1996 Farm Bill was that it allowed farmers to produce virtually any crop, hay, or pasture while receiving transition payments on their base contract acreage (Knutson and Smith, 1995 ). It was hypothesized that after more than 50 years of essentially fixed base acres, the flexibility provisions enabled farmers to change crop rotations, with substantial differences regionally. Findings verified that there were changes in regional crop rotations. While the emphasis in this study is on flexibility, it is recognized that it is difficult to segregate the precise cause of changes in cropping patterns. Weather, price expectations, government domestic and international policy all can play a part in producer's decisions regarding crop planting.