We can estimate the magnitude of these effects from the $34 billion in 2001 food assistance. The magnitude of the effect on agriculture depends on the additional demand for food generated by the programs and by the farm value share in a dollar of additional food expenditure. For instance, we estimate that the farm sector received about $1.45 billion in cash receipts from sales due to the $15 billion of Food Stamp Program (FSP) benefits paid in 2001. The additional sales accounted for 14,000 farm jobs, and $500 million of farm sector value added. We base these estimates on the assumption that every dollar's worth of food stamps generates an additional 26 cents of food demand. Even though recipients spend all food stamps on food, the food stamps allow them to shift some of their previous cash expenditures on food to alternative uses. (See Tracing the Impacts of Food Assistance Programs on Agriculture and Consumers: A Computable General Equilibrium Model).

The effects of food assistance programs on the farm sector also depend on interindustry links between retail food purchased by recipients and farm sector production. Farm sector links to retail food purchases are derived from Bureau of Economic Analysis input-output accounts, which show how industries interact. The spending patterns of food stamp recipients are derived from the Bureau of Labor Statistics’ Consumer Expenditure Survey, which provides information on the buying habits of American consumers. On average, $1 billion of retail food demand by food stamp recipients generates $340 million of farm production, $110 million of farm sector value added, and 3,300 farm jobs. To derive the effects on the farm sector from the $15 billion in food stamp expenditures, assume that only 26 percent of food stamps are spent on food and then multiply the farm sector impacts from $1 billion in food demand by 0.26 and by 15. This calculation underestimates the farm sector impacts because it does not take into account the consumption of nonfood farm products, such as cotton in clothing, by food stamp recipients.

food assistance programs as a stimulus to economic activity during economic downturns
Food and nutrition assistance programs affect the general economy. FSP participation and spending rise during economic downturns, whereas the other food and nutrition assistance programs are less sensitive to cyclical trends in the economy. The counter-cyclical changes in food stamp expenditures can help stabilize the economy, stimulating economic activity during a recession. Characteristics of recessions include excess liquidity in the financial market, excess productive capacity, and unemployment. The conditions of the economy in a recession allow it to expand in response to the increased expenditures from food stamps rather than causing price increases and offsetting cutbacks in other parts of the economy.

Still, the stimulating effect of the FSP depends on how program expenditures are financed during a recession. The Budget Enforcement Act (chapter 25) requires that Federal programs be funded through budget-neutral (balanced budget) means except in emergencies. Whether the FSP stimulates the economy during a recession depends on whether emergency (including the program's contingency fund) or budget-neutral financing is used. In either case, the additional food stamps help stabilize recipient food consumption and well-being during economic downturns and stimulate production in the agriculture and food sectors, thus stabilizing economic activities in key rural sectors.

When the funds for additional FSP expenditures are generated through emergency or contingency fund financing during an economic downturn, the program has beneficial, counter-cyclical, stabilizing effects on the economy. The program stimulates economic activity in the multiplier process of an automatic stabilizer. Our estimates suggest that an additional $1 billion of program expenditures generates $1.84 billion in production (multiplier of 1.84) and an increase of 16,400 jobs. The industry distribution of jobs and value added are presented in figures 5 and 6, respectively. The additional spending will increase farm sales by $97 million and value added by $32 million and will add 950 jobs.

When funds for additional FSP expenditures are generated through budget-neutral financing due to the Budget Enforcement Act of 1990 as amended (it expired at the end of fiscal year 2002), reductions in other expenditures or increases in taxes offset the stimulating effects of the additional food stamp expenditures. Increasing personal income taxes to offset the additional expenditures results in an overall loss of 3,000 jobs for a $1 billion increase in expenditures. Still, farm sales rise by $81 million and 880 jobs are added.

for more information, contact: Kenneth Hanson
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page updated: January 3, 2002