Who Benefits from Government Farm Payments?

Relationships between Payments Received and Farm Household Well-Being Government payments to farmers increased from about $7.5 billion in 1996—the year the “Freedom to Farm” bill was enacted—to over $20 billion in 1999, 2000, and 2001. This increase stemmed from a drop in agricultural prices, which spurred a dramatic growth in emergency market assistance payments and loan deficiency payments (see Figure 1). As government transfers to agriculture have increased, the distribution of farm payments has received greater public scrutiny and spurred a debate in Congress to tighten payment caps on large-scale producers (e.g., Becker, 2000; Becker 2001; Williams-Derry & Cook, 2000). In response to this debate, the 2002 Farm Act created a Commission on the Application of Payment Limitations for Agriculture to “study the effects of limitations on the receipt of direct payments, counter-cyclical payments, loan deficiency payments and marketing loan gains by producers and other entities.” In this article, we evaluate the relationship between government payments and the well-being of farmers. To what extent are government payments going to the most or least well-off farmers? Does the answer to this question change if we include the effect of government payments on land values? Addressing these questions requires a good measure of farm household well-being.