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Article Excerpt
A.A. Farhad Chowdhury (*)
Abstract
This paper designs an acreage response model under the acreage allotment farm program incorporation a policy-inducing variable. The single-equation regression model for each rice-producing state is estimated by the ordinary least squares mulitiple regression procedure. The estimated parameter shows a significant direct relationship between the rice acreage planted and plicy-inducing price in all the rice-growing states. The estimated short-run elasticities for Arkansas, California, Louisiana, Mississippi, and Texas were 0.72, 0.59, 0.67, 0.66, and 0.81 respectively. The heterogeneity in the magnitude of the elasticities during the acreate allotment period suggests considering a rice program formulation in response to each state's variability in physical restraints, availability of irrigation water, average yields, and return over cost, thereby providing risk management incentives to rice growers to respond positively to the farm program. (JEL Q10)
Introduction
With the enactment of the Agricultural Adjustment Act in 1933, the federal government began its intervention in U.S. rice farming [Holder and Warren, 1979, P. 71. Since then, most farm policy adopted was directed toward administering control over acreage and supply of rice to achieve stability in price and farm income and reduce surpluses [Smith et al., 1990, pp. 24-5]. The various methods used to maintain farm income and price stability by government rice programs have been acreage allotments, marketing quotas, non-recourse loans, target price, deficiency payments, a voluntarily paid land diversion, marketing loan, payment in kind, and an acreage reduction program. The definitions for each of these methods are given in the Appendix.
In 1955, acreage controls and marketing quotas were implemented in response to the dramatic increase in rice production the year before. This policy restricted rice farmers' acreage planting and marketing by providing a support price benefit. The gradual increase in rice export and in a market price well above the support price of the 1970s convinced Congress to pursue a market-oriented program. Therefore, the Rice Production Act of 1975 allowed farmers to produce in excess of their acreage allotment. Rice producers who restricted their production within their allocated acres were only eligible for loans and deficiency payments (the difference between the August-December average farm price and the target price) [Cramer et al., 1990, pp. 1056-65]. The farm legislation of 1980, 1985, and 1990 influenced farmers' planting decisions more on market signals, culminating in the Federal Agriculture Improvement and Reform Act of 1996. This eliminated the target price deficiency payment within at least the next seven y ears, being replaced with a fixed schedule of production flexibility contract payments (defined in the Appendix) [Paarlberg and Orden, 1996, pp. 1305-13].
Although the primary objectives of these farm policies were to achieve increased farm income, reduce surpluses, and stabilize prices, there has been a wide variation in the market price and a gradual increase in the rice stock levels under different program options. For example, in spite of the implementation of the acreage allotment program, rice stock ranged from a high of 36.9 million per hundred pounds (cwt) in 1975 to a low of 5.1 million cwt in 1972. During 1976 to 1981 when the provision of target prices and loan rates were in effect, rice stock increased significantly to 49 million cwt in 1981 and the lowest at 16.5 million cwt in 1980. The price fluctuated from the highest at $15.30 cwt in 1973 to the lowest at $3.75 cwt in 1986 [U.S. Department of Agriculture (USDA), 1992a, p. 21].
Under this scenario of wide variations in the market price and gradual increases in rice stock levels under different program options and market conditions, policy makers and farm planners have faced the challenging task of predicting producers' expectations (Garst and Miller, 1975, pp. 30-7]. However, this could be overcome...
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