Subsidios En La Agricultura Americana

NBER WORKING PAPER SERIES

THE BUCK STOPS WHERE? THE DISTRIBUTION OF AGRICULTURAL SUBSIDIES Barry K. Goodwin Ashok K. Mishra François Ortalo-Magné Working Paper 16693 http://www.nber.org/papers/w16693

NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 January 2011

We thank our discussant, Gilbert Metcalf, for his insightful comments. We are also grateful toErzo G.J. Luttmer, Jim Shilling and Fred Sterbenz for useful discussions and comments on an earlier draft. Goodwin is William Neal Reynolds Professor in the Departments of Economics and Agricultural and Resource Economics at North Carolina State University. Mishra is Professor in the Department of Agricultural Economics and Agribusiness at Louisiana State University AgCenter and Louisiana StateUniversity. Ortalo-Magné is Robert E. Wangard Chair in Real Estate at the University of Wisconsin. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. © 2011 by Barry K. Goodwin, Ashok K. Mishra, and François Ortalo-Magné. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quotedwithout explicit permission provided that full credit, including © notice, is given to the source.

The Buck Stops Where? The Distribution of Agricultural Subsidies Barry K. Goodwin, Ashok K. Mishra, and François Ortalo-Magné NBER Working Paper No. 16693 January 2011 JEL No. Q18 ABSTRACT The U.S. has a long history of providing generous support for the agricultural sector. A recent omnibus packageof farm legislation, the 2008 Farm Bill (P.L. 110-246) will provide in excess of $284 billion in financial support to U.S. agriculture over the 2008-2012 period. Commodity program payments account for $43.3 billion of this total. Our paper is concerned with the distribution of these benefits. Farm subsidies make agricultural production more profitable by increasing and stabilizing farm prices andincomes. If these benefits are expected to persist, farm land values should capture the subsidy benefits. We use a large sample of individual farm land values to investigate the extent of this capitalization of benefits. Our results confirm that subsidies have a very significant impact on farm land values and thus suggest that landowners are the real benefactors of farm programs. As land isexchanged, new owners will pay prices that reflect these benefits, leaving the benefits of farm programs in the hands of former owners that may be exiting production. Approximately 45% of U.S. farmland is operated by someone other than the owner. We report evidence that owners benefit not only from capital gains but also from lease rates which incorporate a significant portion of agricultural paymentseven if the farm legislation mandates that benefits must be allocated to producers. Finally, we examine rental agreements for farmers that rent land on both a cash and share basis. We find evidence that farm programs that are meant to stabilize farm prices provide a valuable insurance benefit.

Barry K. Goodwin Departments of Economics and Agricultural and Resource Economics North Carolina StateUniversity Box 8109 Raleigh, NC 27695 barry_goodwin@ncsu.edu Ashok K. Mishra Department of Agricultural Economics and Agribusiness Louisiana State University Agricultural Center 211 Ag. Administration Bldg. Baton Rouge, LA 70803 AMishra@agcenter.lsu.edu

François Ortalo-Magné School of Business University of Wisconsin, Madison 5259 Grainger Hall 975 University Avenue Madison, WI 53706-1323fom@bus.wisc.edu

The Buck Stops Where? The Distribution of Agricultural Subsidies 1 Introduction

A 2002 news report posed the following question. What do former basketball star Scottie Pippen, publisher Larry Flynt, and stockbroker Charles Schwab all have in common? The surprising answer is that all are recipients of farm program subsidies.1 Other notable payment recipients include nine U.S....