Magazine article Amber Waves

Government Commodity Payments Continue to Shift to Larger Farms, Higher Income Households

Magazine article Amber Waves

Government Commodity Payments Continue to Shift to Larger Farms, Higher Income Households

Article excerpt

Federal farm commodity programs have been making payments directly to farmers based on either current or historical agricultural production for decades. While commodity program payments to farmers vary considerably from one year to the next, they continue to play an important role in agricultural policy, accounting for $6 billion to $16 billion annually between 1999 and 2009. (Payments from conservation programs are not covered in this article.)

Payments under commodity programs are concentrated among certain types of farms, with under 30 percent of farms receiving commodity program payments in a typical year. Because these payments are based on a farm's current or historical production - current and historical production are highly correlated - ongoing shifts in agricultural production in recent decades to larger farms also shifted the distribution of commodity-related payments over time to larger farms even when the programs did not change. Since the operators of larger farms tend to have higher incomes, commodityrelated payments have shifted to higher income households, a trend that will probably continue.

Note that all sales of farm products in this article are expressed in constant 2009 dollars, using the Producer Price Index (PPI) for farm products to adjust for changes in commodity prices. Thus, the shifting of farms from one sales class to another reflects changes in the physical quantity of products sold, not changes in the prices of commodities. Likewise, household income is adjusted for price changes using the Consumer Price Index (CPI).

Complex Array of Programs Provide Payments to Eligible Farmers and Farmland Owners

Federal farm programs include the "fixed" or direct payments program, the countercyclical payments (CCP) program, and marketing loan benefits programs. In addition, the 2008 Farm Act created the Average Crop Revenue Election (ACRE) program (see "Switching the Payment Trigger for an Area-Based Revenue Program Could Increase Participation" in this issue), which also provides commodity-related payments, although farmers did not begin receiving ACRE payments until after the period covered in the analysis, 1991 to 2009.

Direct payments and CCPs are based on a farm's historical production, and CCP payments also depend on current market prices. Marketing loan benefits and ACRE payments are tied to current production and market prices. Other, smaller Federal programs target specific farm types, such as the Milk Income Loss Contract program and the tobacco and peanut quota buyout programs, but this article discusses the much larger commodity-related programs.

Not all farms are eligible to receive commodityrelated program payments, and among those that do, the payments' role in the farm's finances varies over time and by type of farm. While eligibility criteria are different among programs, most commodity payments go to farmers growing (or who have historically grown) barley, corn, grain sorghum, oats, peanuts, rice, soybeans, upland cotton, wheat, and other oilseeds, collectively referred to as program crops. Furthermore, payments under several of the programs depend on whether the market price for each program crop is above or below specific levels.

Commodity Program Design Affects Payment Levels

By comparing the distribution of commodity payments across farms specializing in different commodities, and during the most recent years in which the market prices of program crops were relatively high (2009) or low (2005), one can illustrate how the design of the commodity programs affects payment levels. Examining commodity payments' share of gross cash farm income (GCFI) indicates how much of a farm's revenue comes from commodity payments.

In 2005, a year when the market price of many program crops was relatively low, about 27 percent of the 2. 1 million farms in the 48 contiguous States received commodityrelated payments. The number and percentage of farms receiving these payments varied considerably across farm types. …

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