Policy commentary

USDA’s Conservation Reserve Program

Sep 8, 2008
 
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September 8, 2008
Series Editor: Ian Parry
Managing Editor: Felicia Day
Assistant Editors: John Anderson and Adrienne Foerster  

Welcome to the RFF Weekly Policy Commentary, which is meant to provide an easy way to learn about important policy issues related to environmental, natural resource, energy, urban, and public health problems.

This week is the anniversary of the series—a year ago, Paul Portney contributed the first commentary on environmental challenges facing the United States.

The Conservation Reserve Program, under which environmentally sensitive land is taken out of agricultural production, was recently re-authorized under the 2007 farm bill. This week, Ralph Heimlich discusses the evolution of the CRP, its benefits and costs, how it is being affected by ethanol policies, and ways the program might be improved. 

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USDA’s Conservation Reserve Program: Is It Time to Ease into Easements?

Ralph Heimlich

In the midst of the Great Depression, when farmers were failing and the Dust Bowl was swirling, Congress sought to retire land from agricultural production, both to reduce the supply of commodities (thereby increasing their price and propping up farm income) and to prevent erosion of cropland. The policy tool—generically known as the Conservation Reserve Program (CRP)—has taken various formal names as it evolved, but ever since that time, the United States has periodically idled crop acreage. The program is generally instituted when agricultural prices are low and abandoned after prices recover.

Buffers along streams, windbreaks between fields, and even entire farm fields are withdrawn from production under 10- to 15-year contracts in exchange for annual rental payments and assistance with the cost of establishing conservation cover. With renewals and extensions, some land has been under CRP contracts for as long as 30 years and idled for much of the time since 1933. CRP was again reauthorized in the 2007 Farm Bill. It did not entirely escape the budget process, however, as conferees cut the enrollment cap from 39.2 million to 32 million acres in the final days of negotiations.

Buffers along streams, windbreaks between fields, and even entire farm fields are withdrawn from production under 10- to 15-year contracts in exchange for annual rental payments and assistance with the cost of establishing conservation cover. With renewals and extensions, some land has been under CRP contracts for as long as 30 years and idled for much of the time since 1933. CRP was again reauthorized in the 2007 Farm Bill. It did not entirely escape the budget process, however, as conferees cut the enrollment cap from 39.2 million to 32 million acres in the final days of negotiations.

What are the benefits and costs of this long-running experiment in retiring land from commodity production? Has it promoted conservation, or is it a permanent subsidy for owners of marginal cropland? Are there any alternatives?

Costs and Benefits of Land Retirement

The economic benefits of CRP arise from the reduction in agricultural output, which may raise the price of, say, corn and increase revenues for all corn producers; of course, this also reduces the welfare of consumers. Long-term retirement also reduces government expenditures for other programs intended to control commodity supplies, support prices, and raise farm incomes.

 

Ralph Heimlich


 

 

 

 

Ralph Heimlich is the principal and owner of Agricultural Conservation Economics, a consulting firm providing expertise in agricultural conservation policy topics. He has researched and published on a wide range of environmental topics over the last 30 years, including helping develop CRP bid procedures and the Environmental Benefits Index, which is used to evaluate CRP parcels. He retired as a deputy director from USDA’s Economic Research Service in 2003.


Retiring land from production offers ecological benefits, too, by reducing soil erosion and flooding and improving wildlife habitat and water quality—all important to the general population. By protecting 25 million acres of highly erodible cropland from erosion, CRP reduced soil erosion by 470 million tons in FY 2007 compared with pre-CRP erosion rates. CRP’s 1.9 million acres of streamside buffers have protected surface waters from sedimentation and nutrient enrichment. CRP has enrolled 1.1 million acres in the Chesapeake Bay watershed and Great Lakes basin national conservation priority areas and 3.4 million acres in states’ water quality priority areas, plus 2.1 million acres of restored wetlands that filter nutrients and sediments. USDA estimates that in 2007, CRP reduced agricultural runoff of sediment by 207 million tons, nitrogen by 480 million pounds, and phosphorus by 108 million pounds.

Crops

CRP acres contribute to wildlife habitat as well. A 4 percent increase in CRP grassland acres, for example, was associated with a 22 percent increase in pheasant counts. And CRP in the Prairie Pothole region benefits waterfowl, accounting for a 30 percent increase in duck populations between 1992 and 2004 over land without CRP.


A relatively new benefit involves climate change. CRP lands serve as carbon “sinks” and in 2007 sequestered 50 million metric tons of carbon dioxide in soils and vegetation.

Not counting any changes in farm income and consumer prices, net social benefits were estimated to range from slightly less than $1 billion per year to more than $11 billion over 10 years. The costs of CRP over 1985–2005 are estimated at $21.8 billion, less savings in government costs for commodity programs of $11 billion, giving a net cost of $10.7 billion. A partial accounting of estimated benefits totals $23 billion in net present value over the period, resulting in a net social benefit of $12.2 billion (Table 1).

Table 1. CRP costs and benefits, 1985–2005 ($millions)

Costs

 

Annual average (undiscounted)

Net present value (3% discount rate)

 

Direct costs (rent, incentives, establishment cost, technical assistance, administration)

$1,520

$21,799

Supply control savings

$783

$11,052

Net cost to government

$736

$10,747

Benefits

 

 

Soil productivity

$202

$3,003

Water quality

$543

$8,078

Avoided wind-blown dust

$96

$1,427

Wildlife habitat

$704

$10,474

Partial natural resources subtotal

$1,545

$22,982

Net social benefit

$809

$12,235

Source: Agricultural Conservation Economics.

Enter Biofuels

Biofuels are unleashing a burst of “fencerow to fencerow” enthusiasm and threatening to undo the past 30 years of conservation effort. Alternative-energy proponents have had their eye on CRP as a source of “free” land for a decade: it is already subsidized and can be earmarked for biomass production at low cost. Now biofuel production is being encouraged by mandates and subsidies and even a federally supported pilot project on CRP land. As demand soars for alternative fuels, recropping retired land could provide feedstock without stressing traditional markets for feed grain and food. Increased demand for corn to produce ethanol and soybeans to make biodiesel is pushing up prices and drawing down stocks, creating an incentive for additional acres to leave their CRP contracts.

In July 2008, damage to crops from spring floods, spiking demand for biofuels and livestock feed, and rising consumer food prices nearly led Secretary of Agriculture Edward Schafer to release 12 million to 15 million CRP acres without penalty. Even with repayment and penalties, nearly 300,000 acres were bought out of contracts in 2008. Contracts on more than 2 million acres will expire in 2008 and on 20.2 million acres by 2012. Unless CRP rental rates are raised to match incentives for recropping, 27 percent of the CRP land coming out of contract will be economically justified in leaving the program and being plowed up.

Refocusing on the Goals

Of all the USDA conservation programs, CRP has the most explicit focus on efficiency, with an index for measuring the cost-effectiveness of each parcel. Nevertheless, greater benefits could be achieved with a clearer focus on the priorities.

Farm at Sunset