Government Payments and Net Farm Income

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The new demand by biofuels for agricultural resources resulted in changes in land use and a general increase in commodity prices. These two elements have significant consequences for government payments for agricultural programs and for net farm income.

Among government payments, there are four broad categories: loan deficiency payments, contract payments, counter cyclical payments, other payments that include mostly conservation programs and minor programs. Both loan deficiency payments (LDPs) and Counter Cyclical payments depend on the average market prices. Contract payments, also known Direct Payments, are based on historical plantings fixed in 2002, and remain fixed for the duration of the farm legislation. Conservation programs are also independent of prices and land use, and are kept fixed for the duration of this analysis.

Table 17 indicates the impacts in government payments as a result of considering the ETH60 scenario. It contains the impacts on each of these payments categories. The changes in government payments are extremely sensitive to the baseline levels of prices and payments. The changes follow the USDA outlook for Loan Deficiency Payments and Counter Cyclical Payments. While payments are at very low levels in the baseline, the current year crop has shown a significant deviation from USDA projections. Even given these low baseline levels of payments, the increase prices induced by the new biofuels demand resulted in savings in government payments of about a $1 billion for Loan Deficiency Payments, and an additional $7 billion in Counter Cyclical payments for a total savings over the period of about $8 billion.

If a small deviation in the estimates of USDA (between $1 to $2 billion) is considered, the potential total savings in the categories of LDPs and CCP would jump from $8 billion to beyond $50 billion. Moreover, if the possibility of reducing the Contract or Direct payments is considered as a result of increasing Net Farm Income, the potential savings in government payments would jump to above $150 billion. Havsing said that, it is likely that the accumulated government savings would amount to at least $100 billion over the 25 year period. The relationship between changes in net farm income and in government savings is displayed in Figure 18. There is cumulative increase in net farm income over the 2007-2030 of $210 billion projected.

Table 17. Estimated Level of Government Payments by Government Program Under the ETH60 Scenario and the Extended USDA Baseline.

Government Program and _Projected for the Year:_ Total

Table 17. Estimated Level of Government Payments by Government Program Under the ETH60 Scenario and the Extended USDA Baseline.

Government Program and _Projected for the Year:_ Total

Scenario

2007

2010

2015

2020

2025

2030

Million Dollars

Loan Deficiency : ETH60

780

0

0

0

0

3

4,098

USDAExt

816

360

0

0

0

0

5,069

Contract:

ETH60

4,249

5,168

5,168

5,168

5,168

5,168

127,833

USDAExt

4,249

5,168

5,168

5,168

5,168

5,168

127,833

Counter Cyclical:

ETH60

2,126

1,450

470

571

574

682

24,833

USDAExt

3,458

1,714

868

832

819

757

32,616

Other:

ETH60

3,950

4,490

3,610

3,610

3,610

3,610

98,470

USDAExt

3,950

4,490

3,610

3,610

3,610

3,610

98,470

Total Payments: ETH60

11,105

11,108

9,248

9,349

9,352

9,463

255,234

USDAExt

12,473

11,732

9,646

9,610

9,597

9,535

263,988

Changes in Net Farm Income and Government Payments

Changes in Net Farm Income and Government Payments

^—Income Payments

Figure 18. Changes in Net Farm Income and Government Payments Under the ETH60 Scenario.

^—Income Payments

Figure 18. Changes in Net Farm Income and Government Payments Under the ETH60 Scenario.

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