Monday, August 5, 2019

Authored by Professor Silvia Secchi

In her 2006 address to the Applied Agricultural Economics Association, Kitty Smith, who was then Associate Administrator at USDA’s Economic Research Service (ERS), said that most conservation programs’ “priorities are agriculture-centric. They are based on what the producers of the agri-environmental benefits can supply, rather than what is necessarily demanded by the population that would benefit from ensuing environmental service enhancement.”

Portrait of Silvia Secchi
Dr. Silvia Secchi

Dr. Smith’s address was a revelation for me. I was amazed that she was being so frank about the drivers of our conservation policy (to provide the reader with context, I worked at Iowa State University at the time), and that she was able to distill to its essence the problem we face in US conservation policy.

I was recently reminded of her article while looking into Iowa’s Nutrient Reduction Strategy, as the costs and the benefits of all the Best Management Practices included in the very lengthy and frequently revised document are costs and benefits to farmers. This is not how cost benefit analysis is generally conducted, of course. We normally consider costs and benefits for all stakeholders impacted by a policy.

So today I will use the space that Dr. Jones has once again generously shared to talk about our supply and not demand driven conservation programs, and how we could get more bang for the buck for the billions of dollars we spend on conservation.

First off, many of our conservation programs are actual dual purpose programs. They are not purely devised to improve water quality, increase habitat or reduce soil erosion. The are devised to increase farm income AND promote environmental goals. In that sense, Dr. Smith was being generous in her assessment: only half of our conservation priorities are really conservation priorities.

The Conservation Reserve Program (CRP), which is the primary federal program that subsidizes farmers who take land out of production, is a good example of this approach. The CRP was introduced in the 1985 Farm Bill to reduce crop acreage (thus raising crop prices and improving farmers’ income), and to reduce soil erosion. This is the same type of dual purpose that underpinned the 1936 Soil Conservation and Domestic Allotment Act, which was devised as a response to a Supreme Court ruling that found the 1933 Agricultural Adjustment Act unconstitutional.

Thus, dual purpose programs have a long history in US conservation. They work relatively well in times of low crop prices, but in times of high prices they become too expensive and enrollment suffers. That is why after 2007, CRP enrollment went down substantially, as the figure below shows. The price and income support goal of the program was working at cross purposes with its conservation goal.

mkt diseq 1

Besides cyclical price issues, several program features related to the dual nature of the program limit the cost effectiveness of CRP. For example, there is a limit to the cropland that can be enrolled in a county (25%) to ensure that the income associated with program participation is spread across the landscape and, conversely, limiting targeting. Similarly, the mechanism used to enroll acreage in the general sign up (the Soil Rental Rate) allows farmers to collect significant economic rents (rent=revenue from program participation-cost of program participation).

The other big federal conservation program is the Environmental Quality Incentives Program, which pays a portion of the costs of the costs to install and maintain conservation practices on cropland. The supply-driven nature of EQIP is illustrated by the fact that, by law, 50% of the funds have to go to livestock producers. Large-scale livestock producers using Confined Animal Feeding Operations are considered point sources of pollution, which in any other industry would be subject to the polluter pays principle and be responsible for the cost of controlling pollution, not subsidized for activities such as the development of nutrient management plans. There is also evidence that, for non-structural practices such as conservation tillage, the farmers would likely have used the practice even without the payment: in technical terms, there is no additionality and we are paying money for nothing.

How do we make supply meet demand in conservation? It’s not really rocket science. We can consider monetary measures of environmental benefits such as soil conservation and find the level of conservation that matches costs (supply-side) and benefits (demand-side) of conservation. The figure below shows some of these values by watershed, as estimated by USDA’s Economic Research Service.

mkt diseq map

We can also use the money more efficiently, by targeting or using mechanisms that cut rents for farmers participating in conservation programs. Or- gasp! – consider other approaches besides purely voluntary subsidies. For example, there is a wide range of options to address the excess of nitrogen in agriculture, ranging from fertilizer taxes to regulation, and there is an extensive, non-partisan and science-based literature on the pros and cons of various approaches, as the table below illustrates.

mkt diseq table

The first step to address this issue is to be honest about the current situation, and make clear who benefits from it. As Dr. Jones has noted time and again in previous blog posts, we need to face who we are, and admit that supply-based policies go beyond conservation – in fact, they are literally in the driver’s seat.

One final note: It is not a coincidence that all the sources I used for this blog post are associated with USDA’s Economic Research Service (ERS). The current administration is gutting both ERS and the National Institute of Food and Agriculture by forcing them to move to Kansas City because of their science-based findings on beneficiaries of the tax bill, costs of the crop insurance program, impacts of climate change and effectiveness of the SNAP program. This move is occurring against the opinion of a broad spectrum of organizations, from the American Association for the Advancement of Science to the Agricultural & Applied Economics Association (which is my professional association), and without adequately considering the full costs and benefits of the move. Do you see a pattern forming here?

Supply-focused policies benefit only one specific (sub)set of stakeholders and are very socially inefficient (little to no bang for the buck). The beneficiaries of these policies prefer to limit information on the impacts of the policies, and generally restrict access to data and nonpartisan analysis. They do better in their rent-seeking activities if the public is not well informed. ERS – just like Dr. Jones – has been providing impartial, science-based information to all stakeholders.

Providing public support to institutions and experts who are beholden to no one and do not fear retribution is critical to the health of our society. Allowing rent-seeking interest groups to control the flow of information and conservation funding is going to hurt the future of US agriculture and the quality of our environment. Broadly speaking, the imbalance in our conservation policy is just one of many manifestations of a farm subsidy system which inefficiently uses taxpayers’ money, and the public should be informed about that. And in case you think I am expounding some liberal elite talking points, you should check out what the American Enterprise Institute, the Heritage Foundation and the Cato Institute think about the 2018 Farm Bill.