Uncertainty regarding federal farm support and more liberalized trade

     North Dakota producers were concerned about the effects that possible reductions in federal government support and more liberalized trade would have on the level of farm income and its volatility.  U.S. farm programs focus on wheat and provide major income support to states like North Dakota. The prospect of a reduction in federal farm subsidies was of particular interest to the state’s farmers, as government payments represent a higher proportion of net farm income in North Dakota than in other states (Cobia).  As a percentage of total farm income, government payments are higher in the Northern Great Plains than in any other region of the United States (Northern Great Plains Rural Development Commission).  The USDA has reported that, in some areas of the Northern Great Plains, over 30 percent of gross farm income originates from direct government payments (Harrington and Dubman).  In a 1990 report, the North Dakota 2000 Committee, a group formed to study North Dakota's economic situation, noted that 40 percent of the state's net farm earnings were in the form of federal support payments (North Dakota 2000 Committee).

     Producers were looking for alternatives that would help to reduce their reliance on government support.  Cooperative value-added processing was seen as a self-help strategy that could contribute to this goal.  Concern about the lessening of trade barriers and government support has continued throughout the 1990s.
 

In particular, the passage of the 1996 Federal Agricultural Improvement and Reform (FAIR) Act has led to concern about the stability of producer income from year to year.  If government payments are no longer linked to market prices, then farmers may experience greater income volatility in response to changes in market supply and demand (Boland, Lusk and Barton).  Producers are looking towards value-added processing activities as one method to stabilize income in such a market-driven farm economy.  It is interesting to note that the high up-front payments that occurred under the FAIR act coincided with high grain prices.  This may have boosted farmers’ ability to form cooperatives in the mid-1990s.

References

Next

Back to Factors Leading to Cooperative Activity

Home