The 1996 Fair Act: Effects, Pitfalls, and Opportunities

After lengthy debate, a significant change in U.S. policy occurred on April 4, 1996 when the Federal Agriculture Improvement and Reform (FAIR) Act became law. The act is a watershed bill because it represents a major change in policy direction for commodity programs (supply management and price support/stabilization), the environment, and rural communities. Commonly called the 1996 Farm Bill, the FAIR Act decouples direct income support payments from farm prices for seven years. Previously, income support came in the form of deficiency payments, calculated as the difference between a target price and farm-level price that varied significantly from year to year. FAIR, however, provides for seven years of annual fixed but declining flexibility contract payments that are not influenced by current crop plantings, production, or market prices. Omnibus farm bills deal with many policy aspects other than commodity program provisions. A subset of some of the major changes or new provisions are listed below. Following the overview of provision changes, a brief description of what these changes mean for general policy direction, market behavior, agricultural producers, and agribusiness is provided. The paper closes with conclusions on new pitfalls and opportunities that will likely result from these watershed changes