Acreage Response to Price Support and Price Risk under Trade Liberalization

An unexpected surge in sugar imports in 2008 under NAFTA resulted in a large U.S. sugar price fluctuation. This study explores the acreage decision for U.S. sugar beets in an environment where both price support and trade liberalization takes place at the same time. Our empirical analysis is based on county-level data for sugar beets and three substitute crops (corn, soybean and wheat) in twelve U.S. sugar beet growing states over 1997-2018. While we find that an increase in price fluctuation overall has adverse impacts on acreage, the results indicate that farmers respond to price risk differently before and after NAFTA and to the level of price risk. This suggests a need for more precise policy instruments that better protect against unexpected income loss rather than a fixed level of support and enable producers to deal with future extreme events.