FINANCIAL IMPACTS OF GOVERNMENT SUPPORT PRICE PROGRAMS

Recent proposals to index government support prices based on the cost of production will have significant differential impacts on farms with different size and financial characteristics. Simulation analyses indicate that since such proposals result in both increased income and decreased risk and thus capitalization rates, land values could increase dramatically with the larger, high-equity operator best able to pay the higher price for additional land. Furthermore, the guaranteed cash flow from such a program enables the higher equity firm to grow more rapidly in terms of net worth and land ownership as well as exhibit higher levels of family living compared to smaller, highly leveraged firms. © 1978 by the American Agricultural Economics Association.