Utilizing Farm Savings to Reduce Income Volatility for Southern Row Crop Producers

Abstract

American farmers continue to operate in a financially volatile industry, experiencing high revenue variability from year to year. A variety of elements, including erratic weather patterns, variable production costs, and deflated market prices, create financial uncertainty on an annual basis. Farm savings accounts have been discussed at various times over the past thirty years, although they have not been enacted at the federal level. Recently, the need for one-time economic assistance programs has been evident, giving reason to investigate the potential addition of a new risk management tool. The Reducing Farm Income Volatility Account (RFIVA) is a tax-deferred savings account designed to provide income stabilization by encouraging farmers to manage risk through deposits in high-income years, while making withdrawals during low-income years. RFIVA allows farmers to make tax-deductible deposits to lower tax liability during high-revenue years and smooth out their income stream during low-revenue years. This account does not replace existing risk management strategies, such as tax deduction methods, marketing tools, or crop insurance policies. It provides an additional financial management tool for farmers to minimize income volatility and create a personal safety net reserve.