Abstract
The United States spends $20 billion each year on farm subsidies. Farmers face increased risk and income variation when their crop portfolio is less diversified. It’s possible for farm subsidies to decrease diversification if they are focused on specific crops. Utilizing state level subsidy and agricultural data from the Environmental Working Group, I used econometric analysis to estimate the effect of farm subsidies on crop diversification. I used the number of acres planted from the 15 top most subsidized and grown crops in the United States to derive my dependent variable, the Herfindahl-Hirschman index (HHI). The HHI is a market concentration index; I used it as my measure of crop diversification. I tested to see if changes in subsidy values had an impact on the index. I found that crop specific subsidies had a statistically significant effect on diversification. Some crop subsidies increase overall crop diversification while others lead to less diversification. Research suggests that decreases in crop diversification has negative consequences for farmers and society in general.
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Do Farm Subsidies Affect Crop Diversification?
The United States spends $20 billion each year on farm subsidies. Farmers face increased risk and income variation when their crop portfolio is less diversified. It’s possible for farm subsidies to decrease diversification if they are focused on specific crops. Utilizing state level subsidy and agricultural data from the Environmental Working Group, I used econometric analysis to estimate the effect of farm subsidies on crop diversification. I used the number of acres planted from the 15 top most subsidized and grown crops in the United States to derive my dependent variable, the Herfindahl-Hirschman index (HHI). The HHI is a market concentration index; I used it as my measure of crop diversification. I tested to see if changes in subsidy values had an impact on the index. I found that crop specific subsidies had a statistically significant effect on diversification. Some crop subsidies increase overall crop diversification while others lead to less diversification. Research suggests that decreases in crop diversification has negative consequences for farmers and society in general.