Policy Scenarios with the FAPRI Commodity Models

Four policy scenarios were evaluated in this study. The results of these scenarios contribute to the ongoing policy discussions on modifying current farm legislation and on major reform of trade policies through the GATT negotiations. Two of these scenarios evaluate modifications of the current legislation. One expands the Conservation Reserve Program (CRP) to idle 65 million acres, 20 million acres more than the current maximum. Another reduces target prices by 10 percent below levels assumed under baseline, which continues current programs through 1996/97. The increase in CRP acreage virtually eliminates the annual acreage programs and increases commodity prices by about 10 percent on average. It is possible that the large land reserve would lead to tighter commodity markets, which would be more sensitive to weather fluctuations. The primary effect of the reduced-target-price scenario is to reduce the level of income transferred from the government to producers of program commodities. The second set of scenarios includes the United States unilaterally phasing out its current programs and multilateral removal of farm programs in a global context. Under the unilateral option, commodity prices and incomes in the United States fall, and it is likely there would not be sufficient savings in government program costs to compensate the income losses. Most of the costs are internalized in the United States. By contrast, the global free trade option shifts a larger share of the cost to producers in other developed countries. The U.S. faces increased demand for its exports. World commodity market prices increase, except for soybeans, which reduces the income losses of U.S. producers. Furthermore, it would be feasible to design decoupled program payments to compensate producers for income losses, should that be politically desirable.