Dobbs, Thomas L.

English

Research Papers in Economics

 
 
            E C O N O M I C S 
  C O M M E N T A T O R 
South Dakota State University       No. 480                               October 27, 2006 
 
Agri-environmental Policy 
Options for Working Lands  
in the Next United States 
Farm Bill 
 
by 
 
                               Thomas L. Dobbs 
                               Professor of Economics 
 
U.S. farm legislation is due to be updated in 2007, to 
become effective with the 2008 crop year. Major 
questions surround the role of environmental or 
conservation provisions in the new Federal farm bill. 
What are now generally referred to as agri-
environmental policies and programs have roots in 
President Franklin Roosevelt’s ‘New Deal’ conservation 
programs of the 1930s. The Soil Conservation Service, 
the predecessor of today’s U.S. Department of 
Agriculture (USDA) Natural Resources Conservation 
Service (NRCS), was created in 1935. The 1985 ‘Farm 
Bill’ was the first to significantly broaden U.S. 
agricultural policy beyond conservation to a somewhat 
more integrated approach to environmental and farm 
income concerns. The Conservation Reserve Program 
(CRP) program was created, taking highly erodible land 
out of production under long-term contracts. 
Environmental compliance provisions also were enacted 
for the first time in the 1985 Farm Bill.  
 
The Environmental Quality Incentives Program (EQIP) 
was enacted in the 1996 Farm Bill. In part, EQIP 
resulted from combining and consolidating 
environmental programs of the early-1990s that were 
intended to reduce adverse environmental externalities 
on farmed land. EQIP, which was continued with 
modifications in the 2002 Farm Bill, encompasses both 
crop and livestock production practices.  EQIP and its 
immediate predecessors — with foci often inclusive of, 
but broader than soil conservation, encompassing a 
variety of environmental ‘externality’ and ‘public good’ 
concerns—represent the type of program that we have  
 
 
subsequently come to include under the label ‘agri-
environmental programs’.  
 
Agri-environmental programs took on even greater 
importance from an expenditure standpoint in the 2002 
Farm Bill. Funding for EQIP was substantially 
expanded, and the Conservation Security Program (CSP) 
was created. The CSP, as called for in the enabling 
legislation, was to be an ‘entitlement’ working lands 
program. Farms of all types, throughout the country, 
were to be eligible to participate on a non-competitive 
basis. The 2002 Bill authorized a 10-year expenditure 
plan calling for an 80 percent increase in spending on 
conservation and environmental programs. Much of the 
increase in expenditures was to be for working lands 
agri-environmental programs, particularly EQIP and the 
CSP. However, the CSP was substantially delayed—the 
first signups were not held until 2004—and altered, with 
severe funding restrictions. Only farmers in selected 
watersheds have been eligible to enroll in the first three 
signups (in 2004, 2005, and 2006), and there has been a 
quasi-competitive process for selecting participants. 
Although $6 billion was authorized for the CSP for the 
time period 2002-2011, only about $500 million (in 
total) has actually been made available for the first three 
sign-up periods (2004-2006). Substantial additional 
funding has gone into EQIP, however. EQIP received 
$3.95 billion for the 2002-2006 5-year period. This was 
an average of nearly $800 million/year, compared to a 
funding limit of $200 million/year under the previous 
(1996) farm bill. 
 
Other agri-environmental programs for working lands 
include ones to preserve grasslands and to support the 
expansion of ‘organic agriculture’. The 2002 Farm Bill 
provided for a new Grassland Reserve Program (GRP). 
Although U.S. support for organic agriculture does not 
begin to approach the scope and magnitude of organic 
programs in Western Europe, some modest initiatives 
have been launched in the U.S. in recent years.  
 
Despite the increases in Federal expenditures on 
agricultural resource conservation under the 2002 Farm 
Bill, farm ‘commodity program’ payments remain much  
 
higher. Expenditures on USDA-administered 
conservation programs were estimated to be $4.5 billion 
in 2005. By comparison, direct payments, counter-
cyclical payments, and marketing assistance loan 
benefits were forecast to be $16 billion for the 2005 crop 
year. They are estimated to average $11.7 billion 
annually over the crop years 2002 through 2005. The 
combination of government payments through 
commodity programs, emergency assistance, and 
conservation programs was $23 billion in calendar year 
2005, and it averaged $16.2 billion/year during calendar 
years 2002-2005.  
 
The USDA has released a series of ‘2007 Farm Bill 
Theme Papers’ in recent months, the second of which 
deals with “Conservation and the Environment” (USDA, 
2006). Alternative general approaches for the next farm 
bill are presented in these papers. The papers do not 
contain official USDA or Executive Branch positions on 
what approaches should be taken. Four alternative 
approaches or general directions are examined in the 
theme paper dealing with conservation and the 
environment (I have changed the terminology slightly in 
some cases): (1) improve existing agri-environmental 
programs; (2) place much greater emphasis on 
environmental stewardship payments; (3) encourage 
private sector markets for environmental services; and 
(4) expand or strengthen environmental compliance. 
Obviously, policies and programs across these different 
areas are not necessarily mutually exclusive, but the four 
general directions represent alternative possible 
emphases. In the sections to follow, I have drawn 
heavily on this USDA theme paper. Other sources are 
cited in Dobbs (2006), which contains a more complete 
discussion of working lands agri-environmental policy 
options and issues. 
 
Improve existing agri-environmental programs
 
One alternative is to continue most existing agri-
environmental programs but concentrate on changes to 
make them more effective and efficient. Areas in which 
substantial modifications might be made include better 
targeting and increased use of market mechanisms, 
consolidating programs, adjusting conservation 
investments among programs and purposes, and 
conserving energy and developing alternative energy 
sources.  
 
One way to expand ‘targeting’ is to make greater use of 
watershed or landscape approaches.  The watershed 
approach already is being used in the CSP. However, 
national targeting based primarily on the severity of 
environmental problems or potential for environmental 
improvement could make programs like EQIP and CSP 
less uniformly distributed, geographically, than at 
present.  
 
Market mechanisms already are being used to some 
extent, but the 2002 Farm Bill forbade “bidding down” 
of the cost-share in EQIP. The thinking was that large 
farms have economies of size that would enable them to 
more easily bid down than could small farms, resulting 
in more EQIP funds going to the larger farms. 
 
Just as the 1996 Farm Bill consolidated a number of 
programs under EQIP, another round of consolidation of 
various programs might achieve administrative 
efficiencies and improve delivery. Cost-share and 
incentive programs like EQIP and CSP could be 
combined into a single, tiered program. Other programs 
aimed at keeping land in a particular use for long periods 
of time—like CRP, GRP, and the Wetlands Reserve 
Program (WRP)—could be combined under a single, 
multipurpose easement program. These are just a couple 
of consolidation possibilities. 
 
Even with the expanded emphasis on ‘working lands’ 
agri-environmental programs in the 2002 Farm Bill, 
roughly half of conservation program expenditures 
remain devoted to land retirement. It is quite possible 
that greater environmental benefits could be obtained for 
a given level of environmental expenditure by shifting 
even more funds from land retirement to working lands 
programs. A large number of CRP contracts will be 
expiring in 2007 and 2008, making such a shift possible. 
 
There are a variety of ways in which energy 
conservation and production could be more fully 
integrated with agri-environmental programs. EQIP and 
CSP already have provisions that support bio-energy 
production. Expansion of such provisions, or greater use 
of existing provisions, could further capitalize on 
agriculture’s multifunctionality by simultaneously 
contributing to energy production, environmental 
quality, and strengthening of rural economies. However, 
energy and environmental functions can be competitive 
in some cases. Use of agricultural biomass for energy at 
levels that severely deplete soil organic matter is one 
tradeoff that requires careful examination in policy 
proposals to incorporate energy production in agri-
environmental programs.  
 
Place greater emphasis on environmental 
stewardship payments 
 
Until the recent collapse of World Trade Organization 
(WTO) negotiations, one alternative that was the subject  
 
of increased discussion was to shift substantial portions 
of the ‘commodity program’ payments to environmental 
stewardship (or “green”) payments. In this way, some 
farm organizations have sought continued Federal 
payments on a large scale, but through mechanisms that 
they hope would fall in the WTO’s ‘green box’. This 
alternative could face distributional challenges. Also, it 
may be difficult, if pushed to an extreme, to achieve the 
desired green box status. 
 
At the present time, there is a quite different distribution 
of commodity payments and conservation payments. 
More than 50 percent of commodity payments go to 
large, commercial farms, whereas a similar portion of 
conservation payments go to small, rural residence 
farms. Commodity payments are concentrated in the 
Corn Belt, Northern Plains, and Mississippi Delta, where 
‘program crops’—including corn, wheat, and cotton—
are prevalent. Conservation payments are high in some 
portions of those areas (including portions of the 
Northern Plains), but overall, they are more widely 
distributed by geography and farm type. EQIP, for 
example, encompasses not just cropland, but also 
grazing land and other livestock related environmental 
issues.  
 
If a major shift of funds from commodity payments to 
agri-environmental programs were to be accomplished 
by channeling the additional funds into existing 
programs, that could result in an overall redistribution of 
farm payments from large farms producing ‘program’ 
crops to farms producing livestock and a wide range of 
crops. On the other hand, if the shift were to be 
accomplished by targeting most of the additional agri-
environmental funds to farms that produce the major 
‘program’ crops, this might result in substantially less 
environmental benefit than would a strategy based on 
environmental costs and benefits. 
   
Encourage private sector markets for 
environmental services
  
A third alternative approach would be to encourage new 
and expanded private sector markets for environmental 
services. Programs like EQIP and CSP essentially are 
programs for the Federal government to purchase 
environmental services from agriculture. This third 
alternative would entail creation and facilitation of 
market institutions and mechanisms for the private 
sector to make such purchases. There is a great deal of 
interest among economists and policy makers at present 
in the scope for expanded private sector purchases of 
environmental services from agriculture, including 
forestry. In some cases, private sector markets might 
replace government agri-environmental programs. More 
likely, however, they might sometimes serve as a 
complement to government programs, in some cases 
providing scope for reducing (but not eliminating) 
government expenditures. 
 
Government has been the major purchaser of 
environmental services from agriculture in the U.S. 
because many of these services are in the nature of either 
externalities or pubic goods. By definition, the private 
market tends to ‘fail’ for such goods—providing too 
little of the positive goods and too much of the negative 
ones. One step in expanding the scope of private sector 
environmental markets, then, is to sort out which of 
agriculture’s environmental services are more in the 
nature of private goods than of public goods or 
externalities. Some forms of recreation in agricultural 
landscapes—hiking, hunting, boating, for example—
have private goods characteristics to at least some extent. 
Where transactions costs are not too high, private sector 
markets may be used to induce agricultural land uses 
that provide those types of services.  
 
For expanded use of private sector markets to 
complement and reduce the cost of Federal agri-
environmental programs, program rules need to allow 
farmers to sell environmental credits produced as a result 
of the government support. This is currently permitted 
under EQIP. In addition, programs need to be structured 
in such a way that farmers who have potential to market 
those credits will have incentive to participate in the 
particular agri-environmental program (e.g., EQIP) at a 
lower level of compensation than would be required 
without private sector market opportunities. In practice, 
many agri-environmental programs induce multiple 
environmental services, only some of which (if any) 
might lend themselves to private markets. Therefore, the 
trick is to design competitive bid or other contract 
negotiation procedures in such a way that farmer 
participants will maximize their use of private sector 
markets and offer the bundle of environmental services 
at the lowest possible cost (per unit of environmental 
service) to the agri-environmental program. This can be 
a challenge, given the difficulties of measuring and 
monitoring most environmental services from 
agriculture. 
 
Expand or strengthen environmental compliance
  
Yet another alternative approach to environmental 
problems is to expand or strengthen ‘environmental 
compliance’ provisions (often called ‘conservation 
compliance’, or ‘cross-compliance’). At present, 
environmental compliance in U.S. farm policy is focused  
 
on highly erodible land (HEL) and wetlands. It would be 
possible to expand compliance provisions to all cropland 
and to environmental concerns other than soil erosion 
and wetland protection. A prime candidate concern 
would be nutrient runoff and leaching. Most nitrogen 
runoff and leaching come from cropland that is covered 
by commodity payments. Livestock production is 
frequently associated with phosphorus runoff problems, 
but since manure management plans generally call for 
applications to cropland, commodity payments also 
could provide some compliance leverage for those 
problems, as well. USDA research has shown that 
commodity payments generally exceed the costs of 
dealing with nutrient runoff and leaching through 
combinations of nutrient management and buffer 
practices. This suggests that extending environmental 
compliance to nutrient externalities could be effective. 
 
Depending on how expanded compliance provisions are 
specified and carried out, there could be significant 
technical assistance costs for the Federal government, 
but other Federal costs could be low or non-existent. 
Farmers presumably would incur the principal costs of 
compliance, though some costs might be offset by 
existing agri-environmental programs like EQIP. The 
added compliance costs are likely to be unevenly 
distributed across farm types and regions.   
 
Fundamental reform? 
 
The big issue with respect to agri-environmental policies 
in the years ahead is if the U.S. will embark on a more 
comprehensive ‘multifunctional’ approach to 
agriculture—an approach that more explicitly accounts 
for important functions of agriculture in addition to food 
and fiber production. That approach has been under way 
for some time in the European Union (EU), and the 
Common Agricultural Policy (CAP) reforms of 2003 
appear to be moving the EU even further down the 
multifunctionality policy path. The latest CAP reforms 
further ‘decouple’ farm payments from crop and 
livestock commodity production and place even greater 
emphasis on rural development and the rural 
environment. If the U.S. were to embark on a similar 
path, there could be a major shift of funds from 
commodity programs to the CSP, allowing the CSP to be 
carried out more like it was intended in the original 2002 
legislation. In addition, the CSP could be broadened to 
explicitly address rural development objectives, in 
addition to environmental objectives, as have some of 
the agri-environmental programs in Europe. 
 
 For additional information, see: 
Dobbs, T.L. 2006 (September). “Working Lands Agri-
environmental Policy Options and Issues for the 
Next United States Farm Bill.” Economics Staff 
Paper 2006-3, South Dakota State University. 
Brookings, SD.  
 ( http://econ.sdstate.edu/Research/Dobbs-
StaffPaper2006-3.pdf )  
 
U.S. Department of Agriculture (USDA). 2006 (June). 
“Conservation and the Environment.” Second of 
2007 Farm Bill Theme Papers. Washington, D.C. 
 ( http://www.usda.gov/documents/FarmBill07consen
v.pdf) 
 
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Agri-environmental Policy Options for Working Lands in the Next United States Farm Bill

http://repec-sda.sdstate.edu/repec/sda/pdf/Commentator/No480.pdf

Agri-environmental Policy Options for Working Lands in the Next United States Farm Bill

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