An Economic Analysis of U.S. Farm Programs Including Senate and House Farm Bills on Representative Farms

Agricultural policy continues to play a large role in risk reduction for agricultural producers in the United States. However, current budget deficits and growing national debt has many policy makers looking for ways to change the farm safety net. The interactions of current and new policy tools including crop insurance and representative farms were examined in a simulation model for four representative farms. Various outcomes were examined with attention primarily focused on (1) magnitude and frequency of farm program payments, (2) government costs and farmer return on insurance premiums paid, (3) coefficient of variation of farm revenue and probability of negative ending cash, and (4) Stochastic Efficiency with Respect to a Function (SERF) analysis.

Results indicated that Supplemental Coverage Option (SCO) and Stacked Income Protection Plan (STAX) programs provide high farmer returns and positive mean payments. However, SCO, STAX, and crop insurance provided lower levels of protection when both the base and harvest price decline by the same amount. Overall, the House farm bill was preferred by all four farms for every scenario. Additionally, the results for Alternative 4, which examined different insurance coverage levels, showed that it was possible for a representative farm to lower its insurance coverage and improve its financial position. The results indicate how farm programs cover various types of potential losses faced by producer which makes the results meaningful to both producers and policy makers alike.