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Ending Direct Payments Could Have Regional Impact

Ending Direct Payments Could Have Regional Impact

USDA Economic Research Service report studies effects of direct payment elimination, as proposed in new farm bill policy

Ending farm bill-authorized direct payments could have a minimal effect on currently profitable farms, but may have a stronger impact in certain regions of the U.S., according to a new USDA Economic Research Service analysis.

The report, titled "Potential Farm-Level Effects of Eliminating Direct Payments," notes that direct payments– or payments that are not dependent on the recipient's current production decisions or commodity market conditions – have accounted for a significant portion of total farm program costs since 2003, ranging from 21-45% of total farm program payments.

USDA Economic Research Service report studies effects of direct payment elimination, as proposed in new farm bill policy

For example, in 2010, $4.8 billion in direct payments were paid to producers, accounting for 39% of total farm program payments and 6% of U.S. net farm income.

Among the farms that currently receive direct payments, the report authors note that the elimination of these payments is not likely to have a significant effect. However, mostly because of geographic variation in land values, farms in some areas of the U.S. may not fare as well.

"Direct payment farms in the Delta and Southwest regions would be most affected by an end to direct payments, which would cause about 13% of Delta direct payment farms and 10% of Southeast direct payment farms that had favorable [financial] status in 2009 to lose this status," the report says. "These farms would see the most impact because direct payments per farm are higher, on average, in these regions."

Overall, direct payments have had little impact on cropland values from 2004-08 in the Corn Belt and Lake States, the report found.

Removing the payments – which an estimated 21% of farms now receive – would lead to about 11,000 farms to lose their favorable financial status. Similarly, the number of farms already considered financially vulnerable would increase by about 2,600. However, this figure is less than 1% of all farms that receive direct payments.

Though report authors note the many farm-level effects that eliminating direct payments could have, they also point out that new programs, which are included in 2012 farm bill plans, were not assessed as replacement programs.

"Although the potential loss of income and decline in land values could be significant for some farms, new programs (not assessed in this report) that have been proposed in Farm Act deliberations could help maintain farm income stability if direct payments are eliminated. Producers can also take actions – like diversifying crops or seeking off-farm work – to diminish the loss of direct payments," the report says.

In addition to new programs offered in farm bill talks, the report notes that the U.S farm sector has benefited from farmland value growth and average farm income growth just within the past five years. Report authors say this growth would make some farms less likely to experience adverse effects from the elimination of direct payments.

To review the entire report, click here.

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