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Effects of U.S. commodity programs on farm growth

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  • The U.S. farm sector has undergone dramatic structural change during the past fifty years, a chief result being that the number of large farms has increased relative to the number of small farms. Numerous agricultural policies have been instituted, with the partial objective of preserving the family farm. At the same time, a number of studies have attempted to ascertain the contribution of various forces, including farm programs, toward the observed changes in average farm size. These studies have tended to concentrate on aggregate effects, ignoring farm-level and dynamic effects of program and nonprogram factors on farm growth. The present study overcomes such limitations by utilizing a farm-level dynamic growth model which links consumption, production, and investment decisions. Steady-state comparative static and local comparative dynamic analysis of the dynamic model solutions indicate qualitative effects of program and nonprogram factors on farm growth. Simulation of quantitative effects are conducted on econometric estimates of the dynamic model solutions, using Kansas wheat farm data. Empirical results show that set-aside-percentage-type instruments (required and voluntary set-aside percentages) induce longrun net equity increases in small farms and longrun net equity decreases in large farms. In both size classes, set-aside instruments increase longrun land holdings, the increases being greater in larger than in smaller farms. After considering effects on rented land, the effect of set-aside-type instruments on overall scale of operation is negligible. Payment-rate-type instruments (per-acre deficiency, voluntary and paid diversion payment rates) increase longrun net equity and consumption in both small and large farms. They lead to longrun land ownership increases in small farms and decreases in large farms. However, they lead also to increases in rented land, the increase being greater in larger than in smaller farms. Net effect on scale of operation is nonsignificant. Finally, nonprogram factors affect growth also. Technical change increases net equity and landholding in large farms more than in small farms. In both large and small farms, increases in prices of land's substitutes, lead to net equity increases, whereas increases in prices of complements reduce net equity. In the longrun, output price increases encourage consumption and reduce net equity.
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