Ex Ante Assessment of the FAIR Act
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The U.S. Federal Agriculture Improvement and Reform Act of 1996 (FAIR) was designed to reduce government interference in farmers’ crop choice and acreage decisions, and to reduce the burden of agricultural price support payments on the U.S. Treasury (USDA, 1996a; USDA, 1998b). Prior to FAIR, agricultural policy was governed by the Food, Agriculture, Conservation and Trade Act of 1990 (FACT) (USDA, 1989,USDA, 1995). Under FACT, the U.S. government intervened in agricultural commodity markets by limiting production through commodity-specific acreage restrictions and by supporting target prices through deficiency and loan deficiency payments. With the passage of FAIR in 1996, target prices and associated deficiency payments were eliminated, planting restrictions were lifted, and lump-sum subsidy payments (called Production Flexibility Contract Payments, or PFC payments) were introduced (USDA, 1996a;USDA, 1997). In contrast to the deficiency payments made under FACT, PFC payments made under FAIR were decoupled from planting decisions. In theory, decoupling subsidy payments from planting decisions would maintain farm income while improving flexibility and efficiency in production, thereby improving U.S. competitiveness in world markets, and reducing the future farm-subsidy obligations of the U.S. Treasury.
KeywordsUpland Cotton Target Price Price Expectation Anticipate Change Domestic Consumer
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