Understanding the Economic Factors Influencing Farm Policy Preferences

A survey conducted in Mississippi, Texas, Indiana, and Nebraska elicited producers’ preferences for various farm policy changes. This permitted examination of the diversity of preferences that single-state studies have not allowed. Five policy choices, including deficiency payments, loan programs, crop insurance, export programs, and disaster payments were examined. Logit model results predicting producer preferences for each of the five dichotomous policy choices are reported. Explanatory variables based on expected utility theory such as risk aversion, price and yield variability, and price–yield correlation are significant in various models. There are often intense debates about the future direction of farm policy. As Congressional leaders and the Administration continue to seek solutions to concerns expressed by producers and their representative organizations, they are often confronted by divergent and even contradictory messages from various regions and producer groups. Because alternative policies have potentially dissimilar economic implications for producers, their preferences could logically be derived from an economic evaluation of the various alternatives. The research reported in this paper follows the vein of literature that has investigated producer policy preferences at various points in time. Past agricultural policy surveys include Barkley and Flinchbaugh; Edelman and Lasley; Kastens and Goodwin; Orazem, Otto, and Edelman; and Zulauf, Guither, and Henderson. 310 Co b le e t al. i n Re vi e w of Ag R i c u l t uR A l ec on om i c s 24 (2004) Scrimgeour and Passour related preferences for farm policy to the public choice literature where self-interest is generally treated as a strong force motivating individual political preferences. They go on to argue that many factors beyond wealth maximization may enter into policy preferences. Given that many farm policy options under consideration today involve providing risk protection, a natural extension of policy preference analysis consistent with Scrimgeour and Passour is to consider policy preferences in an expected utility framework. This study explores producers’ preferences for current farm policy options. It is commonly observed that these preferences differ by commodity and region. U.S. farm policy generally reflects a compromise among these competing interests, compared with a more decentralized policy structure, such as in Canada. However, the causal economic relationships between policy preferences and economic context in which producers operate is not always clear. For example, a stronger preference for the FAIR Act in the Midwest than in the South during the 1996 farm bill debate was reflected in the legislative concessions leading to final passage. However, economic factors that underlie producer preferences in the various regions are not clear. By capturing variables that characterize the economic context of respondents, we provide insights into the basis for particular policy preferences. A better understanding of the underlying causes of policy preference may lead to a clearer dialogue with respect to formulation of future farm policy. In particular, we examine the economic characteristics of those producers who favor and disfavor the general policy trends of the past decade— movement away from deficiency payments and toward greater reliance on insurance programs.