You've heard the expression “penny-wise and pound foolish.” A new study released by the University of Tennessee's Agriculture Policy Analysis Center says ideas about doing away with the Conservation Reserve Program could be just that.
As Congress prepares to get down to the task of writing the next farm bill, some organizations are suggesting that it do away with or scale back the 34.7-million-acre Conservation Reserve to save federal tax dollars and make more land available for growing crops.
The APAC study says eliminating the CRP would produce initial savings of $12 billion as contracts expire over the next eight years. But taxpayers could also wind up spending $33 billion more on farm programs, assuming they remain unchanged.
“While it seems logical to assume that eliminating a government program would save money, such is not the case with the Conservation Reserve Program,” says Daniel De La Torre Ugarte, associate director of APAC, speaking at a press conference at the National Press Club in Washington.
“However, increased production and lower prices caused by former CRP acreage returning to production causes an increase in government payments of $45 billion over the same nine-year period. The net additional cost to the government of eliminating the CRP is $33 billion.”
De La Torre Ugarte is co-author of the APAC study titled, “Analysis of the Economic Impacts on the Agricultural Sector of the Elimination of the Conservation Reserve Program,” which was released during a news conference held by the American Corn Growers Association.
De La Torre Ugarte and co-author Chad Hellwinckel say the study estimates that in 2015, when the last CRP contracts would expire if the program ended in 2007, corn prices would be 31 cents per bushel below USDA's current projected baseline price of $2.60.
“With additional CRP acres coming into production, wheat prices would be 63 cents per bushel below current expectations and soybean prices would suffer from a 90-cent per bushel drop,” said De La Torre Ugarte. “These lower prices are the trigger that brings about the $33 billion increase in farm program spending.”
The Conservation Reserve Program, which Congress authorized in the 1985 farm bill, was the first federal set-aside program specifically aimed at reducing soil loss on highly erodible lands.
Congress has changed the funding and the acreage caps on the CRP in the years since, but as of April 1, 34.7 million acres of farmland had been converted from crop production to soil, water and wildlife conservation uses under the Conservation Reserve Program.
Besides protecting highly erodible watersheds, protecting and providing new habitat, and reducing pollution, the CRP has reduced supplies of crops that would have been produced on that land if it had not been placed in the CRP. APAC simulations indicate reducing CRP acreage will have major impacts on crop prices, net market income for producers, and government payments.
“Two years ago, Larry Mitchell was attending a meeting in which someone mentioned that you could save $13 billion to $15 billion if you eliminated the CRP as the contracts came due,” said Daryll E. Ray, Blasingame Chair of Excellence in Agricultural Policy and APAC's director. (Mitchell is the CEO of the American Corn Growers Association.)
“Larry began wondering about the impact of such a change on the commodity markets, government payments and the environment. And we started putting a study together analyzing CRP contributions in those areas.”
Since then, several proposals have been floated to eliminate or cap the CRP at lower levels than the current authorization of 39.2 million acres. On Sept. 13, a National Grain and Feed Association representative said Congress should consider changing the CRP “to allow the market to bid productive, non-environmentally sensitive land back into production.”
“To avoid supply disruptions to other users of corn, the market needs to have the opportunity to bid more acres into corn production,” said Michael Malecha, senior vice president for U.S. Bioenergy Corp.
“Regardless of the method, it is critical for the long-term viability of the U.S. grain and oilseed industry to provide sufficient flexibility in the next farm bill to bring idled, productive cropland back into production and limit future idling of productive land when market conditions warrant.”
The APAC study estimates that if CRP contracts are eliminated as they expire, 37 percent of today's 34.7 million CRP acres, or 12.6 million acres, will return to crop production by 2015, according to De La Torre Ugarte. At least 71 percent of returning acres, or 9 million, will grow corn, soybeans and wheat.
“The study estimates the three major crops will lose at least $6 billion in net market returns in 2015 if CRP acres flow back into crop production,” says Ray, who also spoke at the media briefing.
On the other hand, he noted, the APAC model says increasing the CRP program will have significant positive effects on net farm income and reduce government farm payments.
The analysis shows increasing the CRP to 39.2 million acres by 2015 raises net farm income by $600 million. If the CRP were increased to 45 million acres by 2015, net farm income would increase by $1.7 billion. Gross revenue and net farm income for the CRP expansion scenarios include significantly more market revenue and fewer government payments.
“These CRP expansions would result in net savings to the federal treasury over the 2006-2015 study period of $6.3 billion and $12.7 billion, respectively, in farm program spending,” said De La Torre Ugarte.
The study timeframe for the elimination of the CRP was 2006-2015. The authors believe that while recent extensions and renewals would change the timeframe, the general magnitude of the results and the nature of the conclusions would remain the same if the CRP were to be eliminated at some future date.
Ray said USDA has conducted studies documenting the environmental benefits of the Conservation Reserve Program, but has never analyzed the economic impact.
“There is general agreement that the CRP has accomplished a lot of good things in the environmental area,” he said. “But no one has studied the economic contributions. We're going to be working on other issues relative in the 2007 farm bill as well.”
CRP allows farmers to retire highly erodible land from production and also ensure a secure income during times of low commodity pricing. As the program has grown, farmers were able to retire land to reduce degradation of other environmentally sensitive areas of their land.
Currently, USDA pays $1.6 billion in annual CRP rental payments to land owners and operators. During their five-year to 10-year contracts, CRP participants practice a number of conservation methods including grass and tree planting and wildlife cover.
Joining De La Torre Ugarte and Ray were organizations supporting and/or contributing to the study, including the ACGA, Pheasants Forever, the National Farmers Organization, the American Agriculture Movement, the Environmental and Energy Study Institute, the Association of Fish and Wildlife Agencies, the Theodore Roosevelt Conservation Partnership, and the Wildlife Management Institute.