U.S. Agriculture Response to Policy Reform: Does One Farm Household Type Fit All?
7th Annual GTAP Conference on Global Economic Analysis, Washington, D.C.
Posted: 5 Feb 2010
Date Written: June 1, 2004
In this paper, we: 1. Provide a conceptual discussion of the “portfolio” of mechanisms used by farms and households to adjust to price, income and wealth shocks. Farms adjust their production activities and employment to maximize profits given changes in relative prices and factor returns. Households make adjustments in order to maximize their well-being (defined broadly as income, wealth, and the way they use their time) following shocks to farm income and farm asset values. We will draw from the literature, primarily on trade adjustment assistance and wealth effects, to identify key characteristics that influence household adjustment capacity, including age (lifecycle), education, engagement in off-farm labor markets, asset portfolio size and diversification, and local employment conditions. 2. Use a U.S. (single-country) computable general equilibrium to simulate the structural response of U.S. agriculture to policy reform (unilateral removal of all ag. taxes and subsidies). The CGE model data disaggregates U.S. agriculture into 3 farm types and 10 regions, and differentiates farms in each type/region according to their degree of specialization. This approach allows us to capture the hetereogeneity among farm regions/types/specialization in their capacity to adjust to relative price changes, with structural adjustment capacity diminishing when the farm operation is more specialized. It also allows us to move toward a mapping between households and the farm enterprise as the farm becomes more specialized. 3. Provide a descriptive analysis of the distribution of U.S. farm households’ capacity to adjust by describing key adjustment characteristics (identified in section 1) across farms in each region/type/specialization, using data from ARMS. These characteristics may include recent research on rural labor market conditions.
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