This report provides long-run baseline projections for the agricultural sector through 2005 that incorporate provisions of the Federal Agriculture Improvement and Reform Act of 1996 (1996 Farm Act). The baseline assumes that the new farm legislation remains in effect through 2005. Projections cover agricultural commodities, agricultural trade, and aggregate indicators of the sector, such as farm income and food prices. Generally favorable global economic growth is projected in the baseline which, combined with liberalized trade associated with both the GATT agreement and unilateral policy reforms, supports strong growth in global trade and U.S. agricultural exports. Greater market orientation in the domestic agricultural sector under the 1996 Farm Act puts U.S. farmers in a favorable position for competing in the global marketplace. A tightening of the balance between productive capacity and demands results in rising nominal market prices, increasing farm income, and stability in the financial condition of the agricultural sector. However, management of risk will be important for farmers. With the reduced role of the Government in the sector under the 1996 Farm Act, farmers in general face greater risk of income volatility due to price variation, reflecting market price variability more directly. Consumer food prices are projected to continue a long term trend of rising less than the general inflation rate. The baseline projections presented are one representative scenario for the agricultural sector through the middle of the next decade, assuming no shocks and based on specific assumptions regarding macroeconomic conditions, policy, weather, and international developments. As such, the baseline provides a point of departure for discussion of alternative farm sector outcomes that could result under different assumptions. The projections in this report were prepared in October through December 1996, reflecting a composite of model results and judgmental analysis.
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