Grassland to Cropland Conversion in the Northern Plains: The Role of Crop Insurance, Commodity, and Disaster Programs
by
Roger Claassen, Fernando Carriazo,
Joseph Cooper,
Daniel Hellerstein, and Kohei Ueda
Economic Research Report No. (ERR-120) 85 pp, June 2011
What Is the Issue?
Native grasslands in the Northern Plains, particularly those
located in the Prairie Pothole Region (PPR), are used as breeding
habitat by migratory birds. The PPR includes parts of Iowa,
Minnesota, North Dakota, South Dakota, and Montana. Grasslands in
the PPR account for about 50 percent of North American duck
production. There is growing concern that the conversion of
grassland to crop production is damaging this habitat. Once lost,
native grasslands are difficult to re-establish.
Environmental organizations and others have argued that some
Federal farm programs are encouraging grassland to cropland
conversion. While many farm commodity programs are now decoupled
from farmers' crop production decisions, several USDA programs
continue to depend on current production, including crop insurance,
marketing loans, and disaster assistance. Farmers can expand their
eligibility to receive benefits from these programs by converting
grassland to cropland.
To address these concerns, the Food, Conservation, and Energy
Act of 2008 included the Sodsaver provision. If implemented,
Sodsaver would deny crop insurance for the first 5 years of
production on native sod (native grassland) converted to crop
production. Sodsaver is limited to the Prairie Pothole States
(Iowa, Minnesota, Montana, North Dakota, and South Dakota) and
would be implemented on a State-by-State basis but only at the
request of that State's governor. As of June 2011, none of the
governors has requested Sodsaver implementation. The manager's
statement accompanying the 2008 Farm Act also directed USDA to
conduct a study of the role of farm programs in grassland to
cropland conversion.
We focus on three questions: (1) How fast are grasslands being
converted to cropland in the United States, especially in the
Northern Plains? (2) Can a policy like Sodsaver, if implemented,
significantly slow grassland to cropland conversion? (3) More
broadly, what has been the role of crop insurance and other farm
programs in grassland to cropland conversion?
While concern about grassland conversion is often focused on
"native" grassland, available data do not identify grasslands as
"native" or "non-native." Native grasslands are most likely to be
categorized as part of rangeland. This study considers a wide range
of grassland categories including rangeland, pasture, hay, and
Conservation Reserve Program (CRP) lands with grass cover.
What Were the Study Findings?
During 1997-2007, grassland-cropland conversion varied by
grassland type and region. Compared with other regions, producers
in the Northern Plains were more likely to convert grassland to
cropland or retain land in crops rather than returning it to grass.
In the Northern Plains, about 1 percent of 1997 rangeland had been
converted to crop production by 2007 (roughly 770,000 acres), while
only 100,000 acres were converted from cropland to rangeland. The
Northern Plains accounted for 57 percent of rangeland to cropland
conversion between 1997 and 2007. In the United States, there was a
net shift between 1997 and 2007 of roughly 10 million acres from
cultivated cropland (about 3 percent of 1997 cropland) to hay or
pasture. In the Northern Plains, the net shift of cropland to hay
and pasture was effectively zero. The gross shift of roughly 3.5
million acres moving from cropland to hay or pasture was exactly
offset by acreage moving from hay or pasture to cultivated crops.
Through the CRP, however, producers in the Northern Plains moved
some land from cultivated crops to grass. Between 1997 and 2007
they enrolled 3.6 million acres of cropland in the CRP, while 1.9
million acres were returned to crop production and 1.7 million
acres previously in the CRP became hay, pasture, or range.
The Sodsaver provision of the 2008 Farm Act, if implemented, is
likely to have only a modest effect on land use at the
grassland-cropland margin. In seven North and South Dakota counties
where evidence suggests that grassland to cropland conversion has
been relatively high, Sodsaver would reduce expected crop revenue
by up to 5 percent, reduce expected net return by up to 14 percent,
and increase the variability of crop production (in terms of annual
standard deviation of crop revenue) by up to 13 percent. Land use
change depends on how responsive land allocation is to changes in
crop revenue, net return, and variability. Using elasticities
estimated for this study, we find that crop insurance could have
been responsible for shifting up to 0.9 percent of rangeland to
cropland in the seven counties we considered. This is an estimate
of net change in equilibrium acreage and is not directly comparable
to gross rangeland conversion. These counties are located in an
area where an annual average rate of rangeland to cropland
conversion of 0.6 percent of grassland acreage was observed between
1985 and 2003-indicating total conversion of about 6 percent over a
period of 10 years. In comparison, the 0.9-percent change in
estimated equilibrium acreage that would result from the withdrawal
of crop insurance would be modest and indicates that crop insurance
is only one of a number of factors (e.g., market conditions,
technology, and other programs) that are driving land use
choices.
In a study area that includes 77 North Dakota and South Dakota
counties, we use an econometric model to estimate that crop
insurance, marketing loans, and disaster payments increased land in
cultivated crops by 686,000 acres (the average effect between 1998
and 2007)-roughly 2.9 percent of cultivated cropland acreage. (This
is an estimate of the net change in equilibrium acreage. The
estimated effect varies over time with economic and policy
conditions. The 2.9-percent change is the average estimated effect
between 1998 and 2007.) The largest overall effect was from
disaster assistance (1.2 percent rise in cultivated cropland;
292,000 acres), followed by crop insurance (1 percent; 235,000
acres) and marketing loan benefits (0.7 percent; 161,000 acres). We
estimate that roughly 60 percent of the increase in crop acreage
came from hay or pasture (403,000 acres) while the remaining
acreage came from range (181,000 acres) and CRP (102,000 acres).
The estimated rangeland reduction of 181,000 acres was 1.1 percent
of rangeland acreage in the 77 counties considered in this study.
In the absence of these programs, farmers could adjust to larger
grassland acreages by reducing the rate of grassland to cropland
conversion, increasing cropland to grassland conversion, or both.
The study period, 1998-2007, largely predates the recent rise in
commodity prices, beginning with increased corn prices in 2007.
Higher crop prices may be encouraging farmers to expand cropland
acreage, prompting them to convert grassland to cropland or retain
land in crop production that might have otherwise been returned to
grass.
How Was the Study Conducted?
The study has three major components. First, we document trends
in grassland to cropland changes using data from USDA's Natural
Resources Conservation Service (NRCS) 2007 National Resources
Inventory (NRI). A simulation analysis is used to gauge the
potential of a Sodsaver-type program to reduce crop insurance
indemnities and other payments to crops grown on converted
grassland in seven counties, thereby reducing incentives for
grassland conversion. Finally, an econometric (statistical) model
is developed to help understand the role of farm program payments
in the movement of land among cropland, hay and pasture, rangeland,
and CRP in 77 counties from 1997 to 2007, while controlling for
changes in market prices, crop yields, and other nonpolicy factors
that may have also influenced land use decisions.