U.S. farm policy and the volatility of commodity prices and farm revenues

A dynamic three-commodity rational-expectations storage model is used to compare the impact of the Federal Agricultural Improvement and Reform (FAIR) Act of 1996 with a free-market policy, and with pre-FAIR policies. Results suggest that FAIR did not lead to significant increases in long-run price volatility or revenue volatility. The main impact of pre-FAIR, relative to the free-market regime. was to substitute government storage for private storage in a way that did little to support prices or to stabilize farm incomes. Results also indicate that U.S, grain market volatility in 1995-2000 was due to fundamental market forces and not to FAIR.