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Integrating Commodity and Conservation Programs: Design Options and Outcomes
By Roger Claassen, Marcel Aillery, and Cynthia Nickerson
Economic Research Report No. (ERR-44) 61 pp, October 2007
Conservation and commodity programs have many advocates and beneficiaries. Commodity programs
support farm families in an effort to ensure abundant supplies of crop commodities; conservation
programs encourage stewardship of natural resources and the environment. Can these
two aspects of U.S. agricultural policy be joined together into a single, integrated approach to
farm support and conservation? Under this hybrid approach, agricultural producers receiving
commodity payments would also work to improve their environmental performance (and vice
versa)—an appealing quid pro quo. But there is a catch—an integrated program will be effective
in achieving both conservation and commodity program goals only if those producers who
receive existing commodity payments also face pressing environmental needs.
What Is the Issue?
Policymakers may need to compromise commodity program objectives, conservation objectives, or
both, in merging conservation and farm commodity payments into an integrated “green payments”
program. This report:
- examines the extent to which participation in existing conservation and commodity
programs overlap
- devises a set of hypothetical scenarios covering a wide range of possible green payment
program designs
- analyzes likely producer reactions and the resulting environmental and income support
outcomes for each of these scenarios.
What Did the Study Find?
Policymakers may face significant tradeoffs if they attempt to combine farm commodity and conservation
payments. Commodity payments are intended to support farm families while ensuring
abundant supplies of crop commodities at competitive market prices. These goals are quite distinct
in scope and emphasis from those of conservation programs, which are designed to promote
environmentally sound farming practices. Many farms that receive existing conservation
payments or offer opportunities for cost-effective conservation do not receive payments from
existing commodity programs.
In 2004, only a small proportion of U.S. farms (6 percent) received payments from both commodity
and conservation programs, partly because conservation programs have been small relative
to commodity programs. Because conservation program budgets and payments are increasing,
however, the overlap between commodity and conservation payments is likely to increase.
Nonetheless, only 43 percent of conservation program payments in 2004 went to farms that also received commodity program payments. This suggests that a significant share of new conservation payments could
go to farms that currently do not receive commodity payments.
Conservation and farm commodity payments could be combined in many ways. In devising hypothetical scenarios we
consider variations on two general approaches—environmental compliance and environmental performance. The
approaches are selected to help identify and characterize possible tradeoffs between conservation and the farm income
support features of existing commodity programs in designing an integrated program, as follows:
Environmental Compliance. Policymakers could start with existing commodity programs and make them “greener”
by adding environmental compliance requirements. While the new requirements could result in greater conservation
effort by commodity payment recipients, producers’ additional conservation costs would cut into income support.
Moreover, current farm commodity payments reach only about 25 percent of U.S. farms, although those farms control
about 80 percent of cropland and 50 percent of all agricultural land. The other 75 percent of farms and ranches,
including many with pressing environmental needs, are not eligible for payments because they do not produce program
crops.
Environmental Performance. On the other hand, policymakers could start from a conservation program perspective,
devising a set of conservation payments that could exceed producers’ conservation costs and, therefore, support farm
income. One way to do that is to offer payments that are commensurate with environmental performance rather
than cost. To the extent that payments exceed cost, producers could make a “profit” on producing environmental
gains. Because program eligibility would not be confined to farms that receive commodity payments, however,
income support and conservation effort would be spread more broadly across the farm sector than for the environmental
compliance scenarios. If policymakers decide to offer an integrated green payment program in lieu of existing
commodity programs (rather than in addition to these programs), current recipients of commodity payments could
realize a loss in net income support.
Analysis shows both similarities—and significant differences—across the hypothetical scenarios. We estimate that:
- Both environmental compliance and environmental performance scenarios deliver both environmental gain
and income support. While neither approach assumes any specific funding levels for income support or conservation,
both can produce substantial income support and environmental gain. Depending on the specific scenario, conservation
expenditures account for as much as 50 percent of total payments to producers. The balance of the total
payment (total payment less net conservation expenditures) is income support.
- Environmental gain depends critically on program design. While both environmental compliance and environmental
performance scenarios leverage environmental gain, the environmental performance scenarios realize gains
at a lower cost per unit of environmental gain. In other words, environmental performance scenarios are more costeffective
than the environmental compliance scenarios in producing environmental gain. More cost-effective environmental
gain means that a given budget can produce more environmental gain, more income support, or both.
- Policymakers may face a difficult tradeoff between environmental gain and the distribution of income support.
Cost-effective environmental gains are achieved largely by encouraging the enrollment of producers who can deliver
large environmental gains per dollar of cost. These producers, however, are not necessarily those historically receiving
commodity program payments. If policymakers want to continue supporting recipients of existing commodity
program payments, they are likely to face a difficult tradeoff between environmental gain and income support.
How Was the Study Conducted?
Analysis of existing commodity and conservation payments is based on Agricultural Resources Management Survey
(ARMS) data for 2004. To analyze the hypothetical program scenarios, the authors developed a model based on the
ARMS farm business and household survey for 2002. Data from 2002 are used because it is the most recent year for
which grazing land acreage is provided. Additional data on conservation treatment needs (e.g., whether soil erosion,
nutrient runoff, etc., are problems) and the potential for environmental gains were also used. Data sources include
the National Resources Inventory and the Workload Assessment data, both maintained by USDA’s Natural Resources
Conservation Service (NRCS). To quantify environmental gain we use an environmental index, similar to the
Environmental Benefits Index used in the U.S. Department of Agriculture’s Conservation Reserve Program. Producers
were assumed to participate if payments exceed the minimum payment they would accept for undertaking a given
treatment or set of treatments. The payment needed to make farmers willing to adopt specific treatments was estimated
from NRCS Environmental Quality Incentives Program data.
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