2012 Farm Bill Debate over Market Oriented vs. Fixed Support
Despite the historical trend toward program flexibility and market orientation, fixed parameters remain an important feature of some U.S. farm safety net programs. In fact, the degree of fixity varies notably across the programs.
At present, most policy observers expect direct payments to be eliminated. Such a decision eliminates the safety net program with the most fixity. The counter-cyclical program also has a number of fixed parameters, notably target prices and base acres. As discussed above, since its enactment, the counter-cyclical program has tended to provide either little assistance or extended assistance. This outcome is to be expected since prices are difficult to predict accurately. A market-oriented option to determine target prices is to use a moving average of recent prices. Because a moving average follows the market rather than attempting to predict the market, it has the potential to generate a more equitable distribution of payments among crops, as well as, prevent extended periods of assistance. Such an option will be examined in a subsequent article.
Source and Notes for all Figures
NOTE: (A) To count as a year of payment, payments to all U.S. farms for a crop had to exceed $100,000.
SOURCE for Figures 1 and 2: Original calculations using data from U.S. Department of Agriculture, Farm Service Agency at: http://www.fsa.usda.gov/FSA/webapp?area=about&subject=landing&topic=bap-bu-cc
SOURCE for Figure 3: Original calculations using data from U.S. Department of Agriculture, Economic Research Service, Statistical Indicators at: http://www.ers.usda.gov/Publications/AgOutlook/AOTables/