Volume 2, Issue 5 (November 2005)

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In This Issue
Conservation and the Next Farm Bill
CREP in Ohio: What are We Doing?
On the Web...

Conservation and the Next Farm Bill
Brent Sohngen (Sohngen.1@osu.edu)
AED Economics, Ohio State University

A number of years ago I was at a national conference on agricultural conservation where someone important mentioned the number $17 billion.  They alluded to this as the type of funding they’d like to see for conservation programs in the farm bill.  I assume they meant that this would be the money spent over the 5 years of a typical farm bill, but maybe they meant per year?  Either way, it represented, at the time, a substantive increase in farm bill spending on conservation programs.  I believe that we are heading that direction today, quickly, and that conservation programs will receive well north of $17 billion over the life of the next farm bill.  Conservation programs could receive as much or more than $5 billion per year, or $25 billion over a 5 year period.

There are several reasons why I believe this.  First, the U.S. and Europe can finally agree on something: It is politically difficult to reduce farm subsidies, but changes need to be made for domestic reasons, and to satisfy issues raised by many other countries at the current round of World Trade Organization (WTO) discussions.  The U.S. is consequently likely to convert a large share of total payments into green payments.  Second, farmers in the U.S. will support this move.  The Environmental Quality Incentive Program (EQIP) and Conservation Security Programs (CSP) have been over-subscribed, and these are the two biggest programs aside from the traditional Conservation Reserve Program (CRP).  Third, legislators will get intense pressure from their local constituents to enhance conservation programs. Water quality remains an important concern, but states are spending very few of their own resources on water quality and agriculture.

Converting a larger share of farm subsidies to conservation payments is not without its perils – it’s always possible to spend lots of money without improving environmental outcomes for society.  Increasing the total payments would hopefully also increase the emphasis on performance, but it could have the opposite effect if funds are not properly targeted or if agencies like the Natural Resource Conservation Service are overwhelmed.  To help ensure that conservation payments in the future provide environmental benefits, lawmakers should consider providing flexible block grants to states that promote local targeting decisions, and requiring more extensive use of water quality monitoring data to implement programs and to evaluate success.  This would move USDA to implement values-based conservation programs, but such a move could increase the benefits society gets for conservation funds.

Why Farm Bill Conservation Programs Will Expand.

The current farm bill will expire in 2007, and legislators are expected to write and pass a new farm bill covering the period 2007 – 2012.  Historically, farm bill subsidies have attempted to stabilize food supply and farm income, enhance exports, and promote rural communities, among other things.  Since the 1980’s, more emphasis has been placed on environmental programs, first through the Conservation Reserve Program (CRP – see Sohngen, 2005), and more recently through a wide variety of new environmental programs.  Since 2001, conservation programs have accounted for about 13% of total farm bill payments, and about 3% of net cash income in farming in the United States (Figure 1).  Traditional farm support programs are by far the largest share of total payments to farmers, but they will be under the most intense budgetary pressure in the next farm bill.

Figure 1: Proportion of net cash income in farming, average for 1996 – 2004, entire U.S.

Table 1: Conservation payments to landowners in Ohio, 1996 – 2005.

¹ Section 319 funds are managed by the Ohio Environmental Protection Agency (Ohio EPA).  They total around $5 million per year, with around 30% expended each year on agricultural programs.  WPCLF is the Water Pollution Control Loan Fund, also managed by Ohio EPA.  These are loan funds, not true subsidies.

Within Ohio, USDA farm bill programs amounted to $54 million in total funding in 2005, up from $42 million in 2004 and $21 million in 1996 (Table 1).  Funding in Ohio for conservation programs has grown at a rate of 10% per year since 1996.  Nationally, conservation payments have grown at a slightly slower rate of 7% per year in recent years.  There are around 12 million acres of farmland in Ohio, so USDA provided about $4.50 per acre per year in conservation subsidies to Ohio farmers in 2005.  The programs maintained by the state of Ohio are small in comparison to the USDA programs, and the only growth they have shown occurs in the form of loan funds, not true subsidies. Two key points emerge from this data.  First, USDA farm bill payments have in recent years become the major player in water quality policy in the U.S., and second, as a result, the federal government has taken on nearly as big a role in water quality in Ohio as the state government.

Will the increases in funding of the past few years continue?  I believe they will for the following reasons:

Reason 1, Pressure from outside the country will spur a strong shift towards conservation programs.  Negotiations within the World Trade Organization (WTO) will exert substantial influence on conservation policy in the United States.  The latest proposal from the United States to WTO involves large proposed reductions in tariffs, and caps on most farm program payments.  The one exception is that the U.S. is urging that no caps be placed on the so-called “Green Box” payments.  Green Box payments are conservation payments.  The U.S. is setting the stage to shift funding from traditional subsidy programs to conservation payments.

Of course, the U.S. has to convince other countries to go along.  Developing countries, to be sure, see unlimited support for conservation payments as a back-door way of subsidizing agriculture.  They would obviously like to see the U.S. and Europe reduce subsidies overall.  The Europeans are skeptical about U.S. proposals to reduce tariffs, and it’s uncertain how their hesitations may affect negotiations over so-called Green Box payments.  However, the Europeans have been quite earnest with respect to the environment, so they likely can live with unlimited support in Green Box payments. 

Reason 2, existing conservation programs are widely accepted in the farming community. A substantial shift in payments from traditional farm bill programs to conservation programs plays well into the hands of farmers and landowners.  The most recent 2002 Farm Bill has successfully shifted payments from conservation set-aside programs, like the Conservation Reserve Program, to working lands programs, like the Environmental Quality Incentive Program and the Conservation Security Program.  By successful, I mean that it has been relatively easy to get farmers to sign up for these programs.  By all counts, there appears to be a large contingency of support for these programs within the farming community. The so-called working lands programs are already in place, and can be more widely used if funding levels for conservation programs expand.

Reason 3, states will urge federal government to expand conservation programs. The final, but possibly most important, thread of information suggesting a broad expansion of federal conservation programs and funding rests with the states themselves.  The Total Maximum Daily Load (TMDL) requirements of the Clean Water Act have placed a substantial burden on states in that they have suggested relatively large pollution load reductions would be required in many watersheds to meet water quality standards (See Sohngen, 2004).  In addition, where agriculture has been identified as a key source of pollutants, TMDL reports typically rely on farmers taking voluntary actions subsidized by the federal farm bill conservation programs (see the Ohio reports at: http://www.epa.state.oh.us/dsw/tmdl/).

States like Ohio have little intention of meeting the obligations of federal water quality policy with large new subsidy programs of their own.  Ohio never has met its full match obligation with the CRP Enhancement (CREP) program.  The Environmental Protection Agency has about $5 million a year devoted to subsidizing nonpoint source pollution, and only 13% of those funds in recent years have been utilized directly for agricultural best management practices (Figure 2).  Can you blame Ohio for shifting most of its discretionary funds away from agriculture? Since 1996, federal funding for agricultural conservation has more than doubled from $21 million per year to $54 million per year. 

States therefore have little incentive to develop their own programs, and will rely on federal programs to meet water quality standards.  Perhaps it makes sense since federal laws require the water quality improvements in the first place.  But this phenomenon will place immense pressure on lawmakers in Congress to keep providing money to agriculture through conservation payments.

Thus, pressure from the WTO and pressure from states, combined with the success the Natural Resource Conservation Service has shown in allocating current conservation funds to farmers, will lead to an expansion of farm bill conservation programs.  This expansion will occur even if overall farm bill subsidy programs decline.  Within the context of the current farm bill that will expire in 2007, conservation programs will increase to around $2.8 billion per year nationally, and to around $60 million per year in Ohio in the next year.  For the next farm bill, starting in 2007, these programs could expand to $5.0 billion per year nationally, and to $110 million per year in Ohio by 2012.

Figure 2: Proportion of Ohio EPA Section 319 money used for different types of nonpoint source pollution reductions (Source: Russ Gibson, Ohio EPA)

Toward Value Based Conservation Programs.

As much as there is reason to be optimistic from the perspective of the environment, there are many concerns with implementing these programs. The trends above imply that water quality policy in Ohio, and nationally, will increasingly be set and implemented by the U.S. Department of Agriculture, and in particular by the Natural Resource Conservation Service (NRCS).  While USDA will not directly influence the regulatory process, the TMDL listing or de-listing process, or other policy measures, they will control the largest single source of funding for water quality improvements. Controlling the purse strings is control.  The authority of the US Environmental Protection Agency and state agencies, such as the Ohio Environmental Protection Agency, will be eroded. 

The main way that USDA influences water quality policy is through the decisions it makes over how to spend the money it has.  Decisions about which types of practices and which watersheds to target for investment, decisions over the provision of technical resources, decisions over cost-share reimbursement rates, and other decisions have a profound impact upon the kinds of benefits that are achieved, and when the benefits are achieved.  It’s not clear that the system that has developed over the years for allocating money to farmers for traditional farm payments is the right system for ensuring that environmental benefits follow from simple act of spending money.

Currently, all of the money for conservation is funneled to states in specific programs, like the Conservation Reserve Program, the Environmental Quality Incentive Program, and the Conservation Security Program.  The primary constituency for farm bill conservation programs is farmers.  The future farm bill, however, has a broader constituency – the American people.  This constituency has different values than farmers, and wants different things than farmers from conservation programs.  Conservation programs need to be based on these values in order to maintain political viability in the long-run. 

Moving USDA to implement conservation programs that focus first on benefits to society and second on providing money to farmers is the single largest challenge that will be faced in the new farm bill.  I believe that we can meet this challenge in two steps.  The first step is to back away from traditional program based funding and to shift to block grant funding, and the second step is to incorporate quantitative, results based measurements of outcomes.  Let me address each of these in turn.

First, consider the likelihood that mandates in the 2002 Farm Bill prevent the USDA from providing many environmental benefits by requiring specific funding formulas and a fairly even distribution of funds geographically.  It’s difficult to achieve the economies of scale in specific watersheds that would provide real environmental benefits because the money is too spread out.  Alternatively, money may be allocated to essentially useless activities within a watershed simply because money is available and has to be used there or has to be used for specific activities.  This is inefficient. 

To fix this, funding formulas could be adjusted to send block grants to states to implement conservation. Block grants would de-couple money from traditional programs.  States would have to determine their own environmental priorities and apply for money.  The money they “win” would then be spent achieving results in line with their priorities.  Block grants would give states substantially more flexibility and enable them to meet their environmental objectives.  Ohio, for example, could choose to target resources to TMDL watersheds where agriculture is identified as the prime concern. 

Block grants have been used widely in other areas where the federal government funds local initiatives.  They have already been implemented in the 2002 Farm Bill through “Conservation Innovation Grants.”  These should be expanded and made more flexible in the next farm bill.  To obtain such grants, states would have to express clear objectives about the environmental improvements they are trying to achieve.  With more focus, built and sustained at the local level, USDA will be more able to meet the challenge of providing the water quality benefits that Americans value.

Second, an obvious concern with all conservation funding, including block grants, revolves around measuring the benefits.  We do not know whether the application of money to farms for conservation purposes provides environmental benefits commensurate with the expenditures.  The U.S. Department of Agriculture has recently engaged in the Conservation Effects Assessment Program (CEAP) to help clarify whether conservation programs have had an impact on water quality.  This program may eventually tell us quite a bit about successes and failures.  But that’s not the important issue.  We simply have to get better at using data to evaluate progress towards meaningful goals, and to direct the application of future payments. 

More to the point, block grants are only better than program-based funding if environmental outcomes are used to measure success and funding is tied directly to success.  We must link $$ spent and environmental benefits achieved.  It will be much easier to make this link if states have to outline their goals, and if they are held accountable for meeting those goals.  Values-based conservation programs should require the programs to incorporate quantitative, results-based measurements of outcomes.  We already do this with federal education funding, why not do this with conservation funding?  Note that I am artificially drawing the line at states here.  States can also develop granting programs that further push the decision-making, and accountability, down to the local level. 

To make this second point a reality, the CEAP program should be expanded to become a legitimate water quality monitoring function of USDA farm bill conservation programs, with the express purpose of providing data that informs decisions over where and how money is spent.  This expansion should be closely coordinated with other agencies and states, and it should be combined with state level monitoring efforts.  States should also increase their efforts to monitor water quality in a way that provides useful information for implementation.  Someone recently suggested to me that Ohio should use Section 319 money discussed above for monitoring rather than implementation.  This may be a far more practical use of the limited funds if the data can be employed effectively to improve the implementation of conservation programs. 

Conclusion

In this article, I have made two fundamental arguments.  First, I have argued that the WTO, the success of conservation programs with farmers, and limited funding available within the states for environmental conservation on farms all will push Congress to expand conservation programs in the next farm bill.  As a consequence, the USDA will have nearly as much influence on water quality policy in the U.S. as traditional agencies, such as the Environmental Protection Agency and other agencies within the states. 

Second, with the expansion of conservation programs, USDA must become more agile in recognizing and responding to the changing constituencies who are interested in its activities.  It must embrace values-based conservation programs.  The new constituencies include environmental groups, conservation groups, watershed groups, and other local citizens.  The traditional program-based approach for conservation does not allow the USDA to respond fully to the values these constituencies bring to the table.  To address this issue, Congress should consider shifting a large proportion of the farm bill conservation funding to block grants to the states that provide the states with more flexibility to respond to local needs and values.  It should also elevate the importance of monitoring environmental results locally, and using the data to direct future funding decisions.

References:

Sohngen, B.  2005.  The CRP Program in Ohio: What Will the Future Bring?  Ohio Environment Report 2(1), January, 2005.  http://aede.osu.edu/people/sohngen.1/OER/OER2(1).htm#article

Sohngen, B.  Ohio Water Quality, TMDL's, and Agriculture.  Ohio Environment Report 1(2), November, 2004. http://aede.osu.edu/people/sohngen.1/OER/OER_11-8.htm

CREP in Ohio: What Are We Doing?
Brent Sohngen (Sohngen.1@osu.edu)
AED Economics, Ohio State University

The Conservation Reserve Enhancement Program (CREP) began during the 1996 Farm Bill as a way to improve the benefits obtained from the conservation practices supported by the Conservation Reserve Program (CRP).  It raised payment levels for a number of conservation practices that were, at the time, not “widely” adopted by farmers.  The purpose was to increase adoption of the practices, such as riparian buffer strips, tree plantings, prairie grasses, and other practices that would have more environmental benefits than traditional CRP installations.  It also raised payments to compensate for mandatory longer contract periods than in the traditional CRP program (20 – 30 years versus 10 – 15 years).

The average rental payment for CREP land in Ohio is currently $158 per acre per year, according to the USDA Farm Service Agency.  The average rental payment for CRP land in Ohio is $87 per acre per year.  As described in Sohngen (2005), there is evidence that the CRP program overall in Ohio provides $80 - $90 per acre in benefits.  Do the practices installed under the CREP program provide an additional $71 per acre in benefits to Ohioans? 

To answer this question, it’s useful to consider the effects that CREP can have.  First, with higher payments, CREP should attract more acres.  Second, because the payments are supposed to be focused on specific types of practices, CREP should attract more of specific types of practices.  To answer the first question, figure 1 presents CRP and CREP acres for Ohio for the period 1994 – 2005.  CREP began enrolling acres in 2000.  Over the 10 year period, total CRP acres have gone up and down.  As of August, 2005, The Farm Service Agency indicates that there were about 29,000 acres in CREP in Ohio, and 264,000 acres in CRP.  The question is: Are these 29,000 acres entirely new, or are some of them acres that otherwise would have been in the CRP program, paid at a lower rate, but providing the same benefits?  Stated differently, is CREP “stealing” acres that would otherwise go into, or remain in, the regular CRP program.  Consider that as of August, 2005, there were 294,000 acres in CRP plus CREP.  This is only 3,000 acres above the historical high of 291,000 acres in 2002 for the CRP program alone.  Generously, the CREP program may have added 29,000 acres to the set-aside roles, but less generously, it may have added a net of only around 3,000 acres.

To answer the second question, one needs to compare the types of practices supported by the regular CRP program with those supported by the CREP program.  Table 1 presents such a comparison. It shows the CREP and CRP contract acres as of August, 2005 for counties that are located in the CREP program areas.  Counties outside the CREP boundaries are not included in the table.  The table shows that the CREP program has focused heavily on filter strips, native grasses, field windbreaks, riparian buffers, and wetland restoration.  It has essentially doubled the area of filter strips, and more than doubled the area of field windbreaks, riparian buffers, and restored wetlands.

Is CREP doubling our value?  That is, are we getting an additional $70 - $80 in benefits from the CREP program installations?  CREP appears to have increased total set-aside land in Ohio by 3,000 – 29,000 acres.  Are these acres demonstrably different than regular CRP acres?  They do appear to be shifting the emphasis from wildlife-type grass plantings (mostly on highly erodible land) towards some other practices, such as riparian buffers, native grasses, wetland restoration, and field windbreaks.  But for the most part, the largest gain from CREP has been a doubling of filter strips.  It is unclear if these changes double the benefits that we would get from CRP, especially since most of the increases appear to be filter strips.

Figure 1: Total CRP and CREP acres, 1994 – 2005.

Table 1: Comparison of CREP practices to CRP practices for counties where the CREP program is active.

So, what’s the point of all this?  Currently, a number of people are concerned about whether the CREP program will meet its goals, particularly in the Lake Erie basin.  In that region, the program has enrolled only around 23,000 acres out of the hoped for 67,000 acres, in the first 5 years of the program.  The program has 5 years left to reach this goal.  The state and federal government are considering whether they should change the program to increase enrollment.  In particular, they are considering dropping the 20 – 30 year contract requirement and making the extensions voluntary.  The theory here is that landowners are worried about long-term contracts, and therefore are not signing up.  It seems likely that if we raise rental rates, and reduce the contract period, we’ll get more people signing up.

Is this efficient?  I have to ask, why do we have acreage goals at all?  Acres is an essentially meaningless input measure.  The original stated goals of the Lake Erie CREP are to:

• reduce the amount of sediment entering Western Lake Erie by over 2,325,000 metric tons over the next 20 years;
• significantly reduce the amount of nutrients and pesticides that enter Western Lake Erie and its tributaries;
• protect over 5,000 linear miles of streams from sedimentation; and
• improve wildlife habitat in the project.

None of these goals mention acres.  The third comes closest, but one can protect streams from sedimentation without planting riparian zones along the entire stretch.  It may be possible to achieve these goals with fewer than 67,000 acres, as long as the practices are well placed, well designed, and discriminate between high value and low value projects.  Since payments are higher, why not ignore the acreage goals, and instead just focus CREP on having a high impact?

One way to move towards having a high impact would be to run an experiment.  Why not pick several small watersheds (600 – 1500 acres) that can be measured, and work with the landowners in them to undertake important experimental work.   Lots of farmers would probably get engaged in research that could really show something.  Develop close relationships with farmers in a few watersheds, and work with them directly to improve water quality in those watersheds.  Get money for monitoring water quality in those watersheds.  Get baseline measurements of water quality for a year.  Intensively implement perceived high impact CREP practices in the watersheds with the landowners.  Continue measuring water quality.  Do it in several places with lots of different practices.  See if water quality improves.  Use the information generated to improve the future delivery of conservation. This is the principal of adaptive management.  It requires lots of human interaction. But it would be worth it, whether it showed that the practices were providing water quality benefits or not.  Why not give it a try, and test for real if we are getting $70- $80 of additional benefits!

Sources:

Sohngen, B.  2005.  The CRP Program in Ohio: What Will the Future Bring?  Ohio Environment Report 2(1), January, 2005.  http://aede.osu.edu/people/sohngen.1/OER/OER2(1).htm#article

CRP DATA: USDA Farm Service Agency: http://www.fsa.usda.gov/dafp/cepd/crp.htm

On the Web…

Farm Bill Network (http://www.fb-net.org/)

USDA, Natural Resource Conservation Service Farm Bill Page (http://www.nrcs.usda.gov/programs/farmbill/2002/)

National Agricultural Law Center Farm Bill Page http://www.nationalaglawcenter.org/farmbills/

USDA, Economic Research Service Farm Bill Page http://www.ers.usda.gov/Features/FarmBill/

European Union on the 2002 Farm Bill http://europa.eu.int/comm/agriculture/external/wto/usfarmbill/index_en.htm

World Trade Organization
http://www.wto.org/

Office of the United States Trade Representative
http://www.ustr.gov/

Environmental Working Group Farm Subsidy Database http://www.ewg.org/farm/

American Farmland Trust Farm Bill Page http://www.farmland.org/policy/farmbill_reform.htm

Radical Changes for the U.S. Farm Bill? http://www.ag.ohio-state.edu/~news/story.php?id=3377

Liberalizing Agriculture: Why the U.S. Should Look to New Zealand and Australia
http://www.heritage.org/Research/Agriculture/bg1624.cfm

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