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Grain Prices Influence Farm Bill’s Conservation Compliance Provisions


Since the enactment of the 1985 farm bill, eligibility for federal farm program benefits has been predicated on meeting minimum levels of conservation compliance on land used to produce agricultural commodities.

The conservation compliance provisions for highly erodible land require farm program participants to apply approved soil conservation systems on cropland in fields designated by the U.S. Department of Agriculture as being highly erodible.

Likewise, the wetland compliance provisions require farm program participants to refrain from draining wetlands.

But to be effective in reducing soil erosion and conserving wetlands, the incentive — the loss of farm program benefits for non-compliance — would need to exceed the cost of meeting the soil and wetland conservation requirements of the farm bill.

In a newly released study by USDA’s Economic Research Service, the effectiveness of the farm bill’s conservation compliance provisions was looked at under the two most recent farm bills.

While both the 2008 and 2014 farm bills retained the conservation compliance provisions for highly erodible land and draining of wetlands, a major policy change under the 2014 farm bill was that eligibility for farm program benefits was expanded to include the premium subsidies provided under federal crop insurance.

In their study, the researchers found that under the 2008 and 2014 farm bills, the strength of the conservation compliance incentives varied widely among farms because the level of farm program benefits subject to the compliance provisions varied, as did the cost of meeting the compliance requirements.

The researchers also concluded that the incentive to comply with the conservation compliance provisions was highly dependent on current crop price levels.

Most commodity payments are triggered by low prices or low revenue, while crop insurance premium subsidies rise with crop prices because higher prices increase the value of the insured crop.

Using three different price scenarios — high, medium and low — the researchers were able to reach some general conclusions.

Under the low-price scenario, the 2014 farm bill provides a stronger incentive for conservation compliance than the 2008 farm bill because the crop prices that trigger some commodity payments are now higher.

Under the high-price scenario, there was a slightly higher incentive for conservation compliance under the 2008 farm bill because farmers received direct payments even when prices or revenues were low.

When analyzing the incentives, and thus the effectiveness of the wetland compliance provisions, the researchers focused entirely on the Prairie Pothole states — Iowa, Minnesota, Montana, North Dakota and South Dakota — where the wetland compliance incentives are the strongest.

Under a medium-price scenario, an estimated 75 percent of potentially convertible wetlands are on farms where the wetland compliance incentives for complying are likely to be high, thus lowering the probability that wetlands will be drained.

However, the study also indicates that about 10 percent of wetlands are on farms that do not receive benefits subject to the wetland compliance provisions.

To view the entire findings of the study “Conservation Compliance: How Farmer Incentives are Changing in the Crop Insurance Era,” visit www.ers.usda.gov.

Source: Wes Nelson, Agweek.com

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