Abstract: |
The federal government currently runs two major price support programs in
agriculture, the marketing loan and countercyclical payment (CCP) programs.
While these programs are both targeted at providing producer price protection,
they have different political and financial costs associated with them. We
outline these costs and project the effects of various loan rate changes on
these programs for eight crops (barley, corn, cotton, oats, rice, sorghum,
soybeans, and wheat) for 2005. Loan rate changes affect the price support
programs by changing the payment rate producers receive when payments are
triggered. We find that the crop’s relative price strength versus its loan
rate and the relationship between CCP base production and 2005 expected
production have the largest influence on how loan rate changes affect outlays
from the price support programs for the various crops. Of these crops, cotton
is the only one that would be relatively unaffected by loan rate shifts. Corn
and soybeans would see the largest declines in overall expenditures from price
support programs if loan rates were decreased. Oats and soybeans would
experience the largest percentage losses. However, the results also show that
the federal government could maintain an agricultural price support structure
at a lower cost than it is currently paying. The reduction in cost often comes
in situations where the current array of price support programs
overcompensates producers for price shortfalls. This shift would also likely
find greater acceptance under the World Trade Organization (WTO) agriculture
guidelines than would the current structure. For an administration that is
looking to rein in deficit spending while at the same time negotiating new WTO
guidelines, moving to lower loan rates could be an answer. |