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Loan Deficiency Payments versus Countercyclical Payments: Do We Need Both for a Price Safety Net?

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Publication date
03/02/2005
Number of Pages
22
Language:
English
Type of Publication:
Working Papers & Briefs
Focus Region:
Global
Focus Topic:
Market / Trade
Type of Risk:
Market-related
Type of Risk Managment Option:
Risk coping
Commodity:
Other
Author
Chad E. Hart, Bruce A. Babcock
Organization
Center for Agricultural and Rural Development (CARD)

The United States federal government currently runs two major price support programs in agriculture, the marketing loan program and countercyclical payment (CCP) program. While these programs are both targeted at providing producer price protection, they have different political and financial costs associated with them. We find that the crop’s relative price strength versus its loan rate and the relationship between CCP base production and 2005 expected production have the largest influence on how loan rate changes affect outlays from the price support programs for the various crops. The reduction in cost often comes in situations where the current array of price support programs over-compensates producers for price shortfalls. This shift would also likely find greater acceptance under the World Trade Organization (WTO) agriculture guidelines than would the current structure.