The loan rate and target price are key ingredients in US farm policy. Empirical models of the effect of US agricultural policy are based on different degrees of decoupling between price supports and production. Theoretically, rational producers will make decisions based on the loan rate rather than the target price. Therefore, models which are estimated based on a target price specification could significantly overestimate the distortionary impact of policy on resource use and production.
Cite this paper
C. Moss, A. Schmitz and T. Schmitz, "Production Decoupling under US Farm Programs," Natural Resources
, Vol. 5 No. 1, 2014, pp. 10-14. doi: 10.4236/nr.2014.51003
 A. Schmitz, C. B. Moss, T. G. Schmitz, H. W. Furtan, and H. C. Schmitz, “Agricultural Policy, Agribusiness, and Rent-Seeking Behaviour,” 2nd Edition, University of Toronto Press, Toronto, 2010.
 T. G. Schmitz, A. Schmitz and C. Dumas, “Gains from Trade, Inefficiency of Government Programs, and the Net Economic Effects of Trading,” Journal of Political Economy, Vol. 105, No. 3, 1997, pp. 637-647. http://dx.doi.org/10.1086/262086
 A. Schmitz, F. Rossi and T. Schmitz, “US Cotton Subsidies: Drawing a Fine Line on the Degree of Decoupling,” Journal of Agricultural and Applied Economics, Vol. 39, No. 1, 2007, pp. 135-149.
 P. Westcott, C. Young and J. Price, “The 2002 Farm Act: Provisions and Implications for Commodity Markets,” AIB778, USDA/ERS, Washington DC, 2002.
 J. Anton and C. Le Mouel, “Do Countercyclical Payments in the FSRI Act Create Incentives to Produce?” Proceedings of the 25th International Conference of Agricultural Economists, Durban, 2003. http://ageconsearch.umn.edu/bitstream/25811/1/cp03an02.pdf
 B. Goodwin and A. Mishra, “Another Look at Decoupling: Additional Evidence on the Production Effects of Direct Payments,” American Journal of Agricultural Economics, Vol. 87, No. 5, 2005, pp. 1200-1210. http://dx.doi.org/10.1111/j.1467-8276.2005.00808.x
 W. Lin and R. Dismukes, “Risk Considerations in Supply Response: Implications for Countercyclical Payments’ Production Impact,” Proceedings of the American Agricultural Economics Association Conference, Providence, 2005. http://ageconsearch.umn.edu/bitstream/19304/1/sp05li09.pdf
 S. Powell and A. Schmitz, “The Cotton and Sugar Subsidies Decisions: WTO’s Dispute Settlement System Rebalance Agreement on Agriculture,” Drake Journal of Agricultural Law, Vol. 10, No. 2, 2005, pp. 287-330.