Has Decoupling Worked? New Empirical Evidence and Its Implications

An important shift in U.S. agricultural policy occurred with the 1996 Federal Agriculture Improvement and Reform (FAIR) Act. Although the actual intent and effects of the Act remain a topic of debate, many observers believed that the 1996 legislation signaled a transition toward a new policy environment characterized by diminished government involvement in agricultural markets. Perhaps the biggest change in policy under the Act pertained to the use of fixed, decoupled payments (called “production flexibility contract” or “Agricultural Market Transition Act” [AMTA] payments). Under the terms of the FAIR Act, AMTA payments were intended to decline each year until the FAIR Act expired in 2002. However, periods of low prices and localized yield shortfalls during the late 1990s led Congress to pass supplemental, ad hoc payments to farmers. These payments, known as “Market Loss Assistance,” were also decoupled since they were paid on the basis of historical base acreage and thus carried no current production requirements. These payments were, however, tied to market prices in that they were a response to poor market conditions.