Agricultural Conservation
Farm Program Payments Are an Important Factor in Landowners' Decisions to Convert Grassland to Cropland Gao ID: GAO-07-1054 September 10, 2007The nation's remaining grassland has several important benefits, such as providing land for grazing and wildlife habitat for many at-risk species. However, over the past 3 centuries about half of the grassland has been converted to other uses, principally cropland. In addition to losing important grassland values, such conversions may result in increased spending on federal farm programs, such as crop insurance, especially in marginal areas. GAO examined (1) the extent of grassland conversions to cropland and the cost of farm program payments for these newly converted cropland acres; (2) the relative importance of farm program payments versus other factors in producers' decisions to convert grassland to cropland; and (3) any impact the Sodbuster conservation provision--which places soil erosion standards on certain converted land--has had on limiting grassland conversions.
No comprehensive and current source of information exists on the conversion of grassland to cropland or on the resulting farm program payments for newly converted land. However, the data that are available show a decline in private grassland nationwide, continuing conversion of native grassland to cropland in some areas of the country, and that certain farm program payments made to producers in South Dakota counties with relatively high rates of conversion were significantly higher than payments in other counties. According to USDA's National Resources Inventory, the nation's privately owned grassland decreased by almost 25 million acres between 1982 and 2003. While some conversions are attributable to development and other land uses, the leading type of conversion has been to cropland. Our analysis of South Dakota counties found that between 1997 and 2006, the average annual net crop insurance payment per acre for the 16 counties with the highest rates of conversion was nearly twice as high as the average payment for all other counties in the state. Farm program payments are an important factor in producers' decisions on whether to convert grassland to cropland. Certainly other factors, including rising crop prices--largely spurred by increased ethanol demand--and the emergence of genetically modified crops and new farming techniques that make cropping on heretofore unsuitable land possible are also important in producers' decisions. Specifically, our analysis found that farm program payments are an important factor in conversions. Several economic studies have reached the same conclusion. For example, a 2006 USDA study found that increases in crop insurance subsidies motivated producers to expand cropland in the contiguous 48 states by an estimated 2.5 million acres in the mid-1990s. Moreover, farm program payments and conservation programs may be working at cross purposes with one another. For example, from 1982 to 1997, 1.69 million acres of cropland in South Dakota were enrolled in the Conservation Reserve Program, while during the same period, 1.82 million acres of grassland in South Dakota were converted to cropland. The Sodbuster conservation provision has had little impact on conversions. For certain cropland converted from native grassland and classified as highly erodible, Sodbuster requires that producers apply a soil conservation system that does not allow a substantial increase in erosion as a condition to receiving certain farm program payments. However, much of the native grassland converted in recent years is not highly erodible and therefore is not subject to Sodbuster. In addition, according to county-level USDA officials, the cost of controlling soil erosion relative to potential profits from cultivating the land provides little disincentive to conversion. USDA has proposed legislation to make newly converted native grassland ineligible for program benefits.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-07-1054, Agricultural Conservation: Farm Program Payments Are an Important Factor in Landowners' Decisions to Convert Grassland to Cropland
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Important Factor in Landowners' Decisions to Convert Grassland to
Cropland' which was released on September 18, 2007.
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Report to Congressional Requesters: United States Government
Accountability Office: GAO:
September 2007:
Agricultural Conservation:
Farm Program Payments Are an Important Factor in Landowners' Decisions
to Convert Grassland to Cropland:
GAO-07-1054:
GAO Highlights:
Highlights of GAO-07-1054, a report to congressional requesters.
Why GAO Did This Study:
The nation‘s remaining grassland has several important benefits, such
as providing land for grazing and wildlife habitat for many at-risk
species. However, over the past three centuries about half of the
grassland has been converted to other uses, principally cropland. In
addition to losing important grassland values, such conversions may
result in increased spending on federal farm programs, such as crop
insurance, especially in marginal areas. GAO examined (1) the extent of
grassland conversions to cropland and the cost of farm program payments
for these newly converted cropland acres; (2) the relative importance
of farm program payments versus other factors in producers‘ decisions
to convert grassland to cropland; and (3) any impact the Sodbuster
conservation provision”which places soil erosion standards on certain
converted land”has had on limiting grassland conversions.
What GAO Found:
No comprehensive and current source of information exists on the
conversion of grassland to cropland or on the resulting farm program
payments for newly converted land. However, the data that are available
show a decline in private grassland nationwide, continuing conversion
of native grassland to cropland in some areas of the country, and that
certain farm program payments made to producers in counties with
relatively high rates of conversion were significantly higher than
payments in other counties. According to USDA‘s National Resources
Inventory, the nation‘s privately-owned grassland decreased by almost
25 million acres between 1982 and 2003. While some conversions are
attributable to development and other land uses, the leading type of
conversion has been to cropland. Our analysis of South Dakota counties
found that between 1997 and 2006, the average annual net crop insurance
payment per acre for the 16 counties with the highest rates of
conversion was nearly twice as high as the average payment for all
other counties in the state.
Farm program payments are an important factor in producers‘ decisions
on whether to convert grassland to cropland. Certainly other factors,
including rising crop prices”largely spurred by increased ethanol
demand”and the emergence of genetically modified crops and new farming
techniques that make cropping on heretofore unsuitable land possible
are also important in producers‘ decisions. Specifically, our analysis
found that farm program payments are an important factor in
conversions. Several economic studies have reached the same conclusion.
For example, a 2006 USDA study found that increases in crop insurance
subsidies motivated producers to expand cropland in the contiguous 48
states by an estimated 2.5 million acres in the mid-1990s. Moreover,
farm program payments and conservation programs may be working at cross
purposes with one another. For example, from 1982 to 1997, 1.69 million
acres of cropland in South Dakota were enrolled in the Conservation
Reserve Program, while during the same period, 1.82 million acres of
grassland in South Dakota were converted to cropland.
The Sodbuster conservation provision has had little impact on
conversions. For certain cropland converted from native grassland and
classified as highly erodible, Sodbuster requires that producers apply
a soil conservation system that does not allow a substantial increase
in erosion as a condition to receiving certain farm program payments.
However, much of the native grassland converted in recent years is not
highly erodible and therefore is not subject to Sodbuster. In addition,
according to county-level USDA officials, the cost of controlling soil
erosion relative to potential profits from cultivating the land
provides little disincentive to conversion. USDA has proposed
legislation to make newly converted native grassland ineligible for
program benefits.
What GAO Recommends:
GAO recommends that the U.S. Department of Agriculture (USDA) (1) track
the annual conversion of native grassland to cropland to provide
policymakers with more comprehensive and current information on such
conversions and (2) study the extent to which farm program payments and
conservation programs may be working at cross purposes and report
findings to the Congress. USDA generally agreed with GAO‘s findings and
provided comments on the recommendations.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-1054]. To view the
full product, including the scope and methodology, click on the link
above. For more information, contact Lisa Shames at (202) 512-3841 or
shamesl@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Available Data Show Conversion of Native Grassland to Cropland
Continues and These Conversions Add to Farm Program Costs:
Farm Program Payments, Rising Crop Prices, and the Adoption of New
Farming Technologies Provide Incentives to Expand Crop Production on
Native Grasslands:
Sodbuster Has Had Little Impact on Native Grassland Conversions:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: National Resources Inventory Data on Net Changes in U.S.
Land Use, 1982-2003:
Appendix III: Census of Agriculture Data on Net Changes in Uses of Land
in Farms for the United States and Selected States:
Appendix IV: Partial Budget Analysis for a Proposed Conversion of
Native Grassland to Cropland in Central South Dakota, 2003-2007:
Appendix V: Summaries of Economic Studies Examining the Impact of Farm
Program Payments:
Appendix VI: GAO Contact and Staff Acknowledgments:
Related GAO Products:
Tables:
Table 1: Conversions of Rangeland and Pastureland to Cropland in
Selected Crop Production Regions, 1982-1997 and 1997-2003:
Table 2: Conversions of Grassland That Had No Prior Cropping History to
Cropland in Montana, North Dakota, and South Dakota, 2005 and 2006:
Table 3: Comparison of Net Crop Insurance Payments in South Dakota for
the 16 Highest Conversion Counties versus Other Counties:
Table 4: Comparison of Crop Disaster Assistance Payments in South
Dakota for the 16 Highest Conversion Counties versus Other Counties:
Table 5: Estimated Net Change in Income for a Shift to Crop Production
from a Cow-Calf Grazing Operation on a 160-Acre Tract in Central South
Dakota, 2003-2007:
Table 6: Local NRCS Officials' Responses to GAO Survey Question on the
Effectiveness of Sodbuster in Limiting the Conversion of Native
Grassland to Cropland:
Table 7: Net Changes in Rangeland, Pastureland, and Other Land Types,
1982-2003:
Table 8: Net Changes in Uses of Land in U.S. Farms, 1978-1992 and 1997-
2002:
Table 9: Net Changes in Uses of Land in Farms in States with Large
Amounts of Rangeland and Pastureland, 1978-1992 and 1997-2002:
Table 10: Partial Budget Analysis for a Proposed 2003 Change from a Cow-
Calf Enterprise to a Corn/Soybean/Wheat Cropping Enterprise in Central
South Dakota, 2003-2006:
Table 11: Partial Budget Analysis for a Proposed 2003 Change from a Cow-
Calf Enterprise to a Corn/Soybean/Wheat Cropping Enterprise in Central
South Dakota, 2007:
Table 12: Economic Studies That Analyze the Impact of Federal Farm
Program Payments on Either Producers' Land Use Decisions or Farm
Profitability and Risk:
Figures:
Figure 1: U.S. Grasslands before European Settlement:
Figure 2: Process to Determine Sodbuster's Applicability:
Abbreviations:
CRP: Conservation Reserve Program: ERS: Economic Research Service:
FSA: Farm Service Agency:
FWS: U.S. Fish and Wildlife Service: HEL: highly erodible land:
NASS: National Agricultural Statistics Service: NRCS: Natural Resources
Conservation Service: NRI: National Resources Inventory: RMA: Risk
Management Agency:
USDA: U.S. Department of Agriculture:
[End of section]
United States Government Accountability Office: Washington, DC 20548:
September 10, 2007:
The Honorable Tom Harkin:
Chairman:
Committee on Agriculture, Nutrition, and Forestry: United States Senate:
The Honorable Collin C. Peterson: Chairman:
Committee on Agriculture House of Representatives:
Before the European settlement of North America, grasslands occupied
approximately 1 billion acres of the contiguous United States--about
half of the land--mostly west of the Mississippi River. Over the last 3
centuries, about half of this presettlement, or "native," grassland was
converted to other uses, and in some states, such as Iowa, almost all
the native grassland has been converted. The most common use to which
grassland has been converted is cropland for the production of crops
such as corn and wheat.[Footnote 1] This cropland produces food, feed,
and fiber--and now, with the rising demand for ethanol and other
renewable fuels, energy--and can yield relatively high financial
returns to landowners and agricultural producers. However, grassland is
also a valuable resource, providing land for livestock grazing;
recreational opportunities, such as hunting and fishing; and
environmental benefits, such as reducing soil erosion, improving water
quality, increasing carbon sequestration, and providing wildlife
habitat. In particular, some grassland provides habitat for threatened
and endangered and other at-risk species. Converting grassland to
cropland reduces or eliminates these benefits, and can result in
additional spending on federal farm programs. Wildlife, environmental,
and conservation groups, as well as certain cattle industry interests,
have expressed concerns that the financial incentives these farm
programs provide are a significant factor in landowner decisions to
convert grassland to cropland.
The federal farm programs include a variety of income and price support
programs for specific commodities, such as corn, soybeans, and wheat;
crop insurance; and ad hoc disaster assistance programs. For the
purposes of this report, farm program "payments" include commodity-
related payments, crop insurance subsidies, and other benefits. The
U.S. Department of Agriculture (USDA) administers the farm programs. In
recent years, farm program payments have averaged about $20 billion
annually.
The conservation compliance provisions of the Food Security Act of
1985, as amended, condition the receipt of farm program payments on a
producer's efforts to control soil erosion on highly erodible land and
protect wetlands. One of these provisions, known as Sodbuster, requires
producers to apply a soil conservation system that does not allow a
substantial increase in soil erosion on land converted from native
grassland if the land was not cropped before December 23, 1985, and was
determined by USDA to be highly erodible land. In addition, USDA
conservation programs provide financial incentives for taking
conservation actions on working land or for retiring it from
production. Several of these programs, including the Grassland Reserve
Program and Conservation Reserve Program (CRP), promote the
conservation of grassland. Under the Grassland Reserve Program, USDA
offers easements and rental agreements to landowners to assist them in
protecting, conserving, and restoring eligible grassland--such as
important habitat for wildlife. Under CRP, USDA provides about $1.8
billion in annual rental payments to landowners to retire
environmentally sensitive cropland from production and establish
permanent vegetative cover on this land.
In November 2006, we identified the need for better oversight of farm
program payments.[Footnote 2] We specifically highlighted that USDA
support programs may have unintended consequences, including incentives
for producers to grow crops on land prone to drought or erosion.
Without better oversight to ensure that farm program funds are spent as
economically, efficiently, and effectively as possible, we pointed out
that USDA has little assurance that these funds benefit the
agricultural sector as intended.
In this context, you asked us to determine (1) the extent of grassland
conversions to cropland, and the cost of farm program payments related
to these newly converted cropland acres; (2) the relative importance of
farm program payments versus other factors in producers' decisions to
convert grassland to cropland; and (3) any impact the Sodbuster
provision has had on limiting grassland conversions.
In conducting our work, we spoke with and reviewed documents provided
by officials in USDA headquarters and field locations; the U.S. Fish
and Wildlife Service (FWS); farm, wildlife, conservation, and
environmental organizations; state governments; and land grant
universities. To determine the extent of grassland conversions to
cropland, we examined land use data from (1) USDA's National Resources
Inventory; (2) USDA's Census of Agriculture; (3) USDA state offices in
Montana, North Dakota, and South Dakota; and (4) a collaborative study
by Ducks Unlimited, Inc., a private advocacy group supporting the
protection and restoration of wetlands and waterfowl habitat, in
conjunction with FWS; the South Dakota Department of Game, Fish and
Parks; The Nature Conservancy; and the University of Montana. We also
reviewed other relevant studies of grassland conversions to cropland.
To determine the cost of farm program payments on converted land, we
analyzed USDA data on crop insurance and disaster assistance payments.
To determine the relative importance of the availability of farm
program payments in producers' decisions to convert grassland to
cropland, we analyzed payments per cropland acre in counties with
relatively high conversion rates of grassland to cropland. We also
analyzed farm-level financial information for a South Dakota county
that has had numerous conversions. To determine the impact the
Sodbuster provision has had on grassland conversions, we examined USDA
land use data and conducted interviews with USDA field officials in
selected counties with relatively high rates of conversions in Montana,
Nebraska, North Dakota, and South Dakota to obtain their views of the
impact of Sodbuster on conversion decisions. A more detailed
description of our scope and methodology is presented in appendix I. We
performed our work between October 2006 and August 2007 in accordance
with generally accepted government auditing standards.
Results in Brief:
No comprehensive and current source of information exists on the extent
of grassland conversions to cropland or the amount of farm program
payments related to this newly converted cropland. As a result,
policymakers do not have current information on the extent of
conversions for all areas where conversions may have occurred in recent
years. Although limited, available data show a decline in private
grassland nationwide and continuing conversion of native grassland to
cropland in some areas of the country--particularly the Northern
Plains--and that these conversions have added to farm program costs.
For example, USDA's National Resources Inventory data indicate that the
nation's private grassland decreased by almost 25 million acres from
1982 through 2003. While some conversions are attributable to
development and other land uses, the leading type of conversion has
been to cropland. Our analysis found that crop insurance payments to
producers were significantly higher per acre in South Dakota counties
with relatively high rates of conversion, adding to program costs. For
example, from 1997 through 2006, the 16 South Dakota counties with the
highest number of grassland conversions to cropland had an average
annual net crop insurance payment of over $13 per acre, while the
average payment for all other South Dakota counties was less than $7
per acre. According to USDA officials, this difference may be explained
by the fact that the counties with the highest number of conversions
are in areas of the state that are more prone to drought and crop
losses.
Farm program payments are an important factor in producers' decisions
to convert grassland to cropland, but rising crop prices and new
farming technologies are also important factors in these conversions.
From September 2006 to January 2007, the price of corn increased by
over 66 percent, largely because of the growing demand for ethanol, a
corn-based renewable fuel. This demand is expected to continue to
increase, and corn prices are expected to be relatively high for
several years. Genetically modified crops, such as herbicide-resistant
soybeans, as well as new farming techniques, such as no-till planting,
contribute to conversion decisions as well. These developments have
increased the profitability of crop production in some areas that
heretofore were considered marginally suitable or generally unsuitable
for crop production. Our analysis of the economic effects on a farm, if
it were to convert native grassland from grazing to cropping, showed
increased income in 3 of the 5 years covered from 2003 through 2007.
Without farm program payments, income would have increased only in 1
year. Other studies have confirmed a relationship between farm program
payments and conversions. The studies we reviewed generally found that
farm program payments provide significant incentive to convert
grassland to cropland because they increased the expected profitability
of farming while lowering the associated risks. For example, a 2006
USDA study found that increases in crop insurance subsidies motivated
producers to expand cropland in the contiguous 48 states by an
estimated 2.5 million acres in the mid-1990s. Moreover, farm program
payments may work at cross purposes with payments made under
conservation programs intended to protect grassland or to convert
cropland to grassland or another conserving use. For example, between
1982 and 1997, 1.69 million acres of cropland in South Dakota were
enrolled in the CRP, which provides incentives to farmers to convert
cropland to grassland, at a cost to the government of about $633
million. However, during the same period, 1.82 million acres of
grassland in South Dakota were converted to cropland.
Sodbuster has had little impact on slowing grassland conversions
because, in part, much of the converted native grassland in recent
years has not been subject to the Sodbuster provision, which applies
only to highly erodible land. For example, according to USDA's National
Resources Inventory, an estimated 59 percent of the rangeland converted
to cropland between 1997 and 2003 in the Northern Plains was classified
as non-highly erodible and therefore was not subject to the Sodbuster
provision. Similarly, in reviewing records for selected high conversion
counties in Nebraska, we found that over half of the land parcels
converted from 2003 through 2006 were classified as non-highly
erodible. Even when converted grassland is classified as highly
erodible and subject to Sodbuster, the potential profits from cropping
the land usually outweigh the perceived costs associated with
controlling soil erosion. According to USDA officials, the cost of
implementing and maintaining the conservation practices needed to
comply with Sodbuster's soil erosion control standards generally does
little to discourage conversions, especially when the price of corn and
other crops is high. Further, these officials said that new technology
such as herbicide-resistant crops and no-till planting has reduced the
cost of complying with Sodbuster and made farming highly erodible land
economically feasible. For the 2007 farm bill, USDA has offered a
proposal known as Sod Saver that, according to USDA, would discourage
further grassland conversion. In proposing Sod Saver, USDA recognized
that properly managed grasslands provide environmental benefits such as
the protection of wildlife habitat. Under this proposal, certain
grassland--specifically rangeland and native grassland not cropped for
the 6 years preceding the effective date of the 2007 farm bill--
converted to cropland would be permanently ineligible for farm program
payments. The Sod Saver proposal is generally supported by wildlife,
environmental, and conservation groups, as well as certain cattle
industry interests. However, several farm, crop, and livestock
organizations maintain that the proposal would reduce the amount of
farmable land available for beginning farmers, and would constrain
farmers' ability to adapt to changing market conditions related to the
growing demand for crops to produce food and renewable fuels.
In light of these findings, we are recommending that USDA (1) track
annually native grassland conversion to cropland to develop a
comprehensive and current source of information in those geographic
areas where such conversions can occur and (2) study the extent to
which farm program payments and conservation programs, such as the CRP,
may be working at cross purposes and report its findings to the
Secretary of Agriculture and the Congress.
We provided a draft of this report to USDA for review and comment. USDA
provided oral comments through the Chief, NRCS, on September 5, 2007,
indicating general agreement with the report's findings and
recommendations. USDA also said it wanted to ensure that GAO was aware
that with few exceptions, the crop insurance program has strict
criteria on where converted land may be insured. Although USDA has
these criteria, our work found that it does not have a method and the
information needed to enforce them. USDA also provided us with
suggested technical corrections, which we incorporated into this report
as appropriate.
Background:
Before the European settlement of North America, grasslands occupied
approximately 1 billion acres of the contiguous United States--about
half of the land--mostly west of the Mississippi River, as shown in
figure 1.
Figure 1: U.S. Grasslands before European Settlement:
[See PDF for image]
Source: Richard Conner, Andrew Siedl, Larry Van Tassel, and Neill
Wilkins. "United States Grasslands and Related Resources:An Economic
and Biological Trends Assessment," (2001). [hyperlink,
http://landinfo.tamu.edu/presentations/grasslands.html] (Downloaded
January 31, 2007).
[End of figure]
Over the last 3 centuries, about half of this presettlement, or
"native," grassland was converted to other uses, and almost all the
native grassland has been converted in some states, such as Iowa and
Minnesota. While most of the existing privately owned grasslands are
between the Mississippi River and the Rocky Mountains, the grasslands
west of the Rocky Mountains are largely under federal management.
The land uses to which native grasslands have been converted include
pastureland, developed land, and cropland. Historically, cropland--
land used for the production of crops such as corn and wheat--has been
the most common use to which native grassland has been converted.
Cropland--which produces food, feed, fiber, and now energy, especially
ethanol--can yield relatively high financial returns to crop producers
and landowners, and these returns generally increase economic activity
in rural communities. In 2006, the value of U.S. crop production was
$121 billion (43 percent of the value of U.S. agricultural production).
As the United States shifts to more renewable fuels, increasing amounts
of crops, especially corn, are being used to produce energy. The use of
corn to produce ethanol is projected to double between 2006 and 2008
and continue to increase rapidly for several years. Furthermore, crop
exports contribute to the U.S. balance of trade. The United States is
the world's leading exporter of several major crops including corn,
cotton, soybeans, and wheat. Finally, crop production contributes to
local economies in rural counties, affecting demand for farm inputs--
seed, fertilizer, pesticides, herbicides, farm machinery, and labor--as
well as grain marketing and transportation companies.
However, the grassland that cropland displaces also has many economic
as well as environmental benefits. Grassland provides forage for
grazing livestock; provides recreational opportunities, such as for
hunting and fishing; reduces soil erosion; improves water quality; and
aids carbon sequestration, which reduces the amount of carbon dioxide,
a greenhouse gas, in the atmosphere. Although these benefits generally
result from both pastureland and native grassland, those concerned
about the continued loss of grassland have placed a very high priority
on preserving the remaining native grassland for the following reasons:
* Conservation of native grassland contributes to the maintenance of
biological diversity. More specifically, native grassland provides
habitat for wildlife and native species, including native grassland
bird species, some of which are declining. The conversion of native
grassland to other uses, including introduced grasses, can change the
structure and function of habitat such that it no longer supports
native wildlife species. For example, the loss of native grassland in
the Texas coastal prairie eliminated habitat that supported the
Attwater's prairie chicken, a federally endangered species native to
this area. In addition, research in North Dakota by U. S. Geological
Survey wildlife biologists found significantly higher counts of certain
grassland bird species in native grassland than in other grassland.
Furthermore, the fragmentation of remaining native grasslands may
reduce their habitat value and result in them not being large enough to
support their natural biodiversity.
* Once converted, restoring native grassland is difficult and
expensive, and it is questionable whether native habitat can ever be
fully restored. In general, land that is converted back to native
grassland does not regain the ecological function of undisturbed native
grassland. Furthermore, FWS estimates that the cost of restoring native
grassland in eastern South Dakota is about $200 per acre, a substantial
amount relative to the 2006 market value of native grassland in that
area, which ranged from an average of $751 per acre in northeast South
Dakota to $1,055 per acre in east central South Dakota.
Federal farm programs provide payments that can increase the
profitability of crop production and may create incentives for
conversions. Among these programs are the federal crop insurance
program, crop disaster assistance programs, and the marketing
assistance loan program.[Footnote 3]
The federal crop insurance program protects crop producers from
production risks associated with adverse weather as well as price risks
associated with commodity market fluctuations.[Footnote 4] USDA's Risk
Management Agency (RMA) administers the program in partnership with
private insurance companies, which share a percentage of the risk of
loss and the opportunity for gain associated with each insurance policy
written. RMA pays companies a percentage of the premium on policies
sold to cover the administrative costs of selling and servicing these
policies. In turn, insurance companies use this money to pay
commissions to their agents, who sell the policies, and fees to
adjusters when claims are filed. RMA absorbs a large percentage of the
crop insurance program's losses--the difference between premiums
collected and indemnity payments[Footnote 5]--and subsidizes a portion
of the premium paid by participating producers.
Crop disaster assistance programs--ad hoc programs enacted by the
Congress and administered by USDA's Farm Service Agency (FSA)--provide
payments to producers to compensate for losses sustained when planting
is prevented or crop yields are abnormally low because of adverse
weather and related conditions. From 1998 through 2004, ad hoc disaster
assistance legislation was enacted and crop disaster assistance
payments were made for each crop year. These payments were made to both
producers with crop insurance and those without insurance. A May 2007
supplemental spending bill,[Footnote 6] which authorized crop disaster
assistance payments for crop year 2005, 2006, and 2007 losses,
prohibited payments to a producer who either waived crop insurance or
did not participate in the Noninsured Assistance Program in the year of
the loss.
The conservation compliance provisions of the Food Security Act of
1985,[Footnote 7] as amended, condition the receipt of farm program
payments on the producer's efforts to control excessive soil erosion on
highly erodible land and protect wetlands. One of these provisions,
known as Sodbuster, requires producers to apply a soil conservation
system that meets the required level of protection that allows for no
substantial increase in soil erosion on land converted from native
vegetation if the land was not cropped before December 23, 1985, and is
or was determined by USDA to be highly erodible land.[Footnote 8] A
producer applying for certain farm program payments certifies with FSA
that he or she will comply with conservation provisions. If the land in
question was not cropped before December 23, 1985, and USDA's Natural
Resources Conservation Service (NRCS) has not previously determined
whether or not the land is highly erodible land, FSA refers the
producer's application to NRCS to conduct the determination. If NRCS
determines, or has previously determined, that the land is highly
erodible, Sodbuster applies and the producer must maintain a
conservation system that will not permit a substantial increase in soil
erosion. Under NRCS's procedures, this producer must use a conservation
system that controls erosion to a greater extent than is required for
highly erodible land that was cropped before December 23,
1985.[Footnote 9] Figure 2 illustrates when a landowner must apply a
conservation system, as required by Sodbuster, to control erosion on
newly converted cropland.
Figure 2: Process to Determine Sodbuster's Applicability:
[See PDF for image]
Source: GAO's analysis of USDA‘s information; photo, U.S. Fish and
Wildlife Service.
[End of figure]
Available Data Show Conversion of Native Grassland to Cropland
Continues, and These Conversions Add to Farm Program Costs:
Over the last 25 years, some areas, particularly in the Northern
Plains, experienced conversions of native grassland to cropland, and
these conversions have added to farm program costs. While there is no
comprehensive and current source of information on the extent of native
grassland conversions to cropland or the amount of farm program
payments made in relation to this newly converted cropland, available
sources provide some information on conversions and related costs.
Nationwide, total private grassland declined by almost 25 million acres
from 1982 through 2003. In addition, conversions of native grassland to
cropland continue in the Northern Plains, particularly in areas of
North Dakota and South Dakota. Analysis of county-level data indicates
that South Dakota counties with relatively high rates of conversions
had high crop insurance and crop disaster assistance program costs.
Available Sources of Information Indicate That Grasslands Decreased,
and Native Grassland Conversions to Cropland Were Highest in the
Northern Plains:
Available information on the extent and location of grassland
conversions to cropland is not comprehensive and current. For example,
data on conversions of grassland to cropland are not available at the
state or county level for the most recent years (except in three
states--Montana, North Dakota, and South Dakota--where data are being
collected on an informal basis to provide information to FWS and Ducks
Unlimited on wildlife habitat loss). In addition, the most recent
national and regional data are current only through 2003. As a result
of these limitations, policymakers do not have current information on
the extent of conversions at relevant landscape levels for all areas
across the country where conversions may have occurred in recent years.
For example, except for the above three states, information is not
available on conversions within local areas where further loss of
native grassland may affect wildlife populations. Such information--
particularly for native grasslands, which are difficult to restore--is
important in assessing the need for and the results of policy changes.
Moreover, among the available sources of grasslands data, differences
in grassland definitions complicate characterization of conversions to
cropland and trends in the amount of grasslands. Despite these
limitations, available sources provide some information on conversions.
Specifically:
NRCS's National Resources Inventory (NRI). The NRI is a periodic
statistical survey of land use and natural resource conditions and
trends on nonfederal lands.[Footnote 10] According to the NRI, from
1982 to 2003 in the 48 contiguous states, rangeland and pastureland
declined by about 10.4 million acres (about 2.5 percent) and 14.1
million acres (about 10.8 percent), respectively, making the total
decline in grassland about 24.5 million acres. Most of the decline in
rangeland occurred between 1982 and 1992. These net changes do not
indicate the number of acres converted from rangeland and pastureland
to cropland. For example, some of the decline in rangeland was due to
conversions to non-cropland uses, such as developed land. Appendix II
has additional NRI data on net changes in grassland and other land-use
categories.
The NRI also provides information on conversions of rangeland and
pastureland to cropland. As shown in table 1, for selected USDA crop
production regions, the highest conversions of rangeland to cropland
were in the Northern Plains, where 2.61 million acres (about 3.5
percent) and 590,000 acres (about 0.8 percent) were converted during
1982 through 1997 and 1997 through 2003, respectively. The annual
rangeland conversion rates declined from the 1982 through 1997 time
frame to the 1997 through 2003 time frame for each of the three regions
that had rangeland. Regarding conversions of pastureland to cropland,
the highest amounts were in the Corn Belt, where 4.48 million acres
(about 17.6 percent) and 1.66 million acres (about 8 percent) were
converted during 1982 through 1997 and 1997 through 2003, respectively.
Table 1: Conversions of Rangeland and Pastureland to Cropland in
Selected Crop Production Regions, 1982-1997 and 1997-2003:
Region: Northern Plains[A];
Rangeland to cropland, 1982-1997, (acres in millions with margins of
error): 2.61 (2.19-3.03);
Rangeland to cropland, 1997-2003, (acres in millions with margins of
error): 0.59 (0.47-0.71);
Pastureland to cropland, 1982-1997, (acres in millions with margins of
error): 1.80 (1.57- 2.03);
Pastureland to cropland, 1997-2003, (acres in millions with margins of
error): 0.77 (0.62-0.92).
Region: Southern Plains[B];
Rangeland to cropland, 1982-1997, (acres in millions with margins of
error): 1.17 (0.98-1.36);
Rangeland to cropland, 1997-2003, (acres in millions with margins of
error): 0.29 (0.15-0.43);
Pastureland to cropland, 1982-1997, (acres in millions with margins of
error): 0.94 (0.70-1.18);
Pastureland to cropland, 1997-2003, (acres in millions with margins of
error): 0.42 (0.28-0.56).
Region: Mountain States[C];
Rangeland to cropland, 1982-1997, (acres in millions with margins of
error): 2.04 (1.63-2.45);
Rangeland to cropland, 1997-2003, (acres in millions with margins of
error): 0.58 (0.27-0.89);
astureland to cropland, 1982-1997, (acres in millions with margins of
error): 0.99 (0.76-1.22);
Pastureland to cropland, 1997-2003, (acres in millions with margins of
error): 0.80 (0.55-1.05).
Region: Lake States[D];
Rangeland to cropland, 1982-1997, (acres in millions with margins of
error): [d];
Rangeland to cropland, 1997-2003, (acres in millions with margins of
error): [d];
Pastureland to cropland, 1982-1997, (acres in millions with margins of
error): 1.98 (1.80-2.16);
Pastureland to cropland, 1997-2003, (acres in millions with margins of
error): 0.96 (0.80-1.12).
Region: Corn Belt[E];
Rangeland to cropland, 1982-1997, (acres in millions with margins of
error): [e];
Rangeland to cropland, 1997-2003, (acres in millions with margins of
error): [e];
Pastureland to cropland, 1982-1997, (acres in millions with margins of
error): 4.48 (4.21-4.75);
Pastureland to cropland, 1997-2003, (acres in millions with margins of
error): 1.66 (1.46-1.86).
Source: NRCS's NRI data.
Note: These regions have large amounts of cropland and have or
previously had large amounts of native grassland as well.
[A] The Northern Plains states are Kansas, Nebraska, North Dakota, and
South Dakota.
[B] The Southern Plains states are Oklahoma and Texas.
[C] The Mountain States are Arizona, Colorado, Idaho, Montana, Nevada,
New Mexico, Utah, and Wyoming.
[D] The Lake States are Michigan, Minnesota, and Wisconsin. None of
these states had measurable rangeland in 1982 or 1997.
[E] The Corn Belt States are Illinois, Indiana, Iowa, Missouri, and
Ohio. Among these states, only Missouri had measurable rangeland in
1982 or 1997. Specifically, Missouri had about 143,000 and 88,000 acres
of rangeland in 1982 and 1997, respectively.
[End of table]
National Agricultural Statistics Service's (NASS) Census of
Agriculture. The Census of Agriculture, conducted every 5 years by
NASS, is a census of U.S. farms and ranches and is another source of
national data on changes in the amount of private grasslands on farms.
The Census of Agriculture does not use the NRI definitions of rangeland
and pastureland, and unlike the NRI, the Census of Agriculture combines
rangeland and pastureland grasslands into a single category. Also,
unlike the NRI, the Census of Agriculture provides data only on net
changes and does not provide information on conversions of grassland to
cropland. According to the Census of Agriculture, rangeland and
pastureland declined by 21.9 million acres (about 5.1 percent) between
1978 and 1992 and 2.9 million acres (about 0.7 percent) between 1997
and 2002. Appendix III provides additional information from the Census
of Agriculture on changes in land use for the United States and
selected states.
FSA data for Montana, North Dakota, and South Dakota. In recent years,
to provide information to FWS and Ducks Unlimited on the amount and
location of native grassland converted to cropland, FSA state and
county offices in Montana, North Dakota, and South Dakota voluntarily
collected county-level data on conversions of grassland that had no
prior cropping history.[Footnote 11] The FSA offices collected this
information through existing annual acreage reports. These data showed
that within North Dakota and South Dakota, conversions have been
highest in counties in the western part of the Prairie Pothole Region,
an area of many small, isolated wetlands where the remaining native
grassland provides important wildlife habitat. Table 2 shows the
available data on acres converted in 2005 and 2006.
Table 2: Conversions of Grassland That Had No Prior Cropping History to
Cropland in Montana, North Dakota, and South Dakota, 2005 and 2006:
State: Montana;
2005: 10,373 acres;
2006: 6,245 acres.
State: North Dakota;
2005: [A];
2006: 20,592 acres.
State: South Dakota;
2005: 54,404 acres;
2006: 47,167 acres.
Source: GAO's analysis of FSA's data.
[A] According to FSA officials in North Dakota, consistent data are not
available for 2005 because county offices did not use consistent data
collection methods in that year.
[End of table]
Ducks Unlimited Study.[Footnote 12] A recent Ducks Unlimited study
provided additional information regarding the extent of native
grassland conversions to cropland in the western part of the Prairie
Pothole Region in North Dakota and South Dakota. The researchers
analyzed conversions from 1984 through 2003, examining satellite
imagery from this period and performing field checks to identify native
grassland. The study found that from 1984 through 2003, an estimated
144,000 acres were converted from native grassland to cropland. The
highest conversions were in central South Dakota. The study concluded
that the annual conversion rates--which ranged from 0.32 percent to
0.95 percent across the study areas--were relatively low but that the
acreage converted was significant from a biological and economic
perspective.
Although states other than Montana, North Dakota, and South Dakota may
have experienced conversions in recent years, we did not find any other
systematic efforts to collect state or local conversions data. However,
we were able to obtain some quantitative information that provides some
indication of recent conversions in Nebraska. While data on the number
of acres converted were not available, NRCS state and county officials
in Nebraska provided data for 26 of the state's 93 counties on the
number of land tracts on which producers had informed USDA of their
intention to convert grassland to cropland.[Footnote 13] The data show
that USDA was informed of nearly 5,200 planned conversions during 2003
through 2006, with the highest county having 678 planned conversions.
According to FSA, NRCS, and state wildlife agency officials in
Nebraska, many producers were motivated to convert by an interest in
gaining irrigation water rights before moratoriums on these rights took
effect in certain areas of the state. Some of these officials believe
this motivation--and thus the number of conversions--may decline if
existing moratoriums on water rights are not modified and new
moratoriums are not announced.
Crop Insurance and Crop Disaster Assistance Costs Were Significantly
Higher in Counties That Had Higher Conversion Rates:
Converting grassland to cropland, and thus bringing more land into
production, has the potential to increase government costs because this
new cropland is eligible for crop insurance, crop disaster assistance,
and marketing assistance loan payments, and could become eligible for
direct and countercyclical payments if an update of crop base acres is
allowed in the future. However, only limited data are available on
government costs associated with grassland converted to cropland
because USDA has little information on the location of converted land
tracts and generally does not track farm program payments to specific
tracts. As such, we analyzed county crop insurance and disaster
assistance payments data in relation to 2005 and 2006 data on
conversions of grassland to cropland for South Dakota
counties.[Footnote 14] The South Dakota counties that had the most
conversions of grassland with no cropping history to cropland also had
significantly higher crop insurance and crop disaster assistance costs
than other counties. Specifically, we found:
Crop insurance. Our analysis of RMA's crop insurance data indicates
that conversions of grassland with no cropping history added
disproportionately to government costs for crop insurance in South
Dakota. Table 3 shows the net crop insurance payments received by
producers in the 16 South Dakota counties with the highest rates of
conversions in 2005 and 2006 in comparison with the net payments
received by producers in the state's other counties. The 16 highest
conversion counties had net crop insurance payments that averaged
$13.03 per acre from 1997 to 2006, almost twice as much as the $6.66
per acre net payment received in South Dakota's remaining 50 counties.
Also illustrated in the table is the contrast between the net payments
in the 16 highest conversion counties and 7 historically cropped
counties in southeast South Dakota that had a negative net crop
insurance benefit during this period--that is, crop producers in these
counties collectively paid more into the crop insurance program as
premiums and other fees than they received from the program as
indemnity payments.[Footnote 15]
Table 3: Comparison of Net Crop Insurance Payments in South Dakota for
the 16 Highest Conversion Counties versus Other Counties:
Area: 16 counties with the highest conversions;
Crop: Corn;
Crop years 1997 to 2006, Total: $255,520,183;
Crop years 1997 to 2006, Per acre: $22.78;
Crop years 1989 to 2006, Total: $280,392,006;
Crop years 1989 to 2006, Per acre: $18.62.
Area: 16 counties with the highest conversions;
Crop: All crops[A];
Crop years 1997 to 2006, Total: 485,522,546;
Crop years 1997 to 2006, Per acre: 13.03;
Crop years 1989 to 2006, Total: 550,751,456;
Crop years 1989 to 2006, Per acre: 10.30.
Area: 50 other counties;
Crop: Corn;
Crop years 1997 to 2006, Total: 231,662,594;
Crop years 1997 to 2006, Per acre: 8.27;
Crop years 1989 to 2006, Total: 290,214,231;
Crop years 1989 to 2006. Per acre: 7.11.
Area: 50 other counties;
Crop: All crops[A];
Crop years 1997 to 2006, Total: 532,176,375;
Crop years 1997 to 2006, Per acre: 6.66;
Crop years 1989 to 2006, Total: 672,826,085;
Crop years 1989 to 2006, Per acre: 5.67.
Area: 7 selected historically cropped counties[B];
Crop: Corn;
Crop years 1997 to 2006, Total: (3,562,466);
Crop years 1997 to 2006, Per acre: (0.45);
Crop years 1989 to 2006, Total: 5,135,553;
Crop years 1989 to 2006, Per acre: 0.42.
Area: 7 selected historically cropped counties[B];
Crop: All crops[A];
Crop years 1997 to 2006, Total: State totals: (3,059,947);
Crop years 1997 to 2006, Per acre:
Crop years 1989 to 2006, Total: 11,805,739;
Crop years 1989 to 2006, Per acre: 0.49.
State totals:
Crop: Corn;
Crop years 1997 to 2006, Total: $487,182,777;
Crop years 1997 to 2006, Per acre: $12.42;
Crop years 1989 to 2006, Total: $570,606,237;
Crop years 1989 to 2006, Per acre: $10.21.
State totals:
Crop: All crops[A];
Crop years 1997 to 2006, Total: $1,017,698,921;
Crop years 1997 to 2006, Per acre: $8.68;
Crop years 1989 to 2006, Total: $1,223,577,541;
Crop years 1989 to 2006, Per acre: $7.11.
Source: GAO's analysis of RMA's data.
Note: Net crop insurance payments are the indemnity payments that
producers received less the premiums and administrative fees that
producers pay. We did not include government costs resulting from (1)
payments to insurance companies for underwriting gains and
administrative and overhead expenses and (2) the cost of RMA operating
expenses in this analysis because county-level data on these costs were
not available.
[A] Includes all crops except forage production and forage seeding.
[B] These counties have not had large increases in crop production in
recent years and are located in two adjacent NRCS major land resource
areas.
[End of table]
Crop disaster assistance payments. Similar to our crop insurance
analysis, our analysis of FSA crop disaster assistance payments data
indicates that conversions of grassland with no cropping history add
disproportionately to government costs for disaster assistance payments
in South Dakota.[Footnote 16] Table 4 shows the crop disaster
assistance payments received by producers in the 16 South Dakota
counties with the highest conversion rates in comparison with the
payments received by producers in other South Dakota counties. From
1998 to 2004, crop disaster assistance payments in the 16 highest
conversion counties totaled more than $195 million (40 percent of the
state total), compared with approximately $292 million for the other 50
South Dakota counties, including about $16 million in 7 historically
cropped counties in southeast South Dakota.
Table 4: Comparison of Crop Disaster Assistance Payments in South
Dakota for the 16 Highest Conversion Counties versus Other Counties:
Crop years: 1998;
16 counties with the highest conversions (as a percentage of state
totals): $8,534,884 (38%);
All 50 other counties: $13,710,472;
7 selected historically cropped counties[A]: $393,778;
State totals: $22,245,356.
Crop years: 1999;
16 counties with the highest conversions (as a percentage of state
totals): 16,063,451 (40%);
All 50 other counties: 24,502,868;
7 selected historically cropped counties[A]: 4,969,368;
State totals: 40,566,319.
Crop years: 2000; 16 counties with the highest conversions (as a
percentage of state totals): 23,266,266 (45%);
All 50 other counties: 28,741,631;
7 selected historically cropped counties[A]: 1,992,956;
State totals: 52,007,897.
Crop years: 2001; 16 counties with the highest conversions (as a
percentage of state totals): 12,480,417 (34%);
All 50 other counties: 24,474,570;
7 selected historically cropped counties[A]: 2,782,104;
State totals: 36,954,987.
Crop years: 2002; 16 counties with the highest conversions (as a
percentage of state totals): 74,432,452 (42%);
All 50 other counties: 104,322,913;
7 selected historically cropped counties[A]: 2,716,984;
State totals: 178,755,365.
Crop years: 2003; 16 counties with the highest conversions (as a
percentage of state totals): 43,800,987 (46%);
All 50 other counties: 50,521,907;
7 selected historically cropped counties[A]: 2,796,699;
State totals: 94,322,894.
Crop years: 2004; 16 counties with the highest conversions (as a
percentage of state totals): 16,744,315 (27%);
All 50 other counties: 45,360,495;
7 selected historically cropped counties[A]: 784,346;
State totals: 62,104,810.
Crop years: Total; 16 counties with the highest conversions (as a
percentage of state totals): $195,322,772 (40%);
All 50 other counties: $291,634,856;
7 selected historically cropped counties[A]: $16,436,235;
State totals: $486,957,628.
Source: GAO's analysis of FSA's data.
Notes: (1) These crop disaster assistance payments include payments for
losses of major cultivated crops, such as corn, soybeans, and wheat, as
well as fruits and vegetables, such as melons, apples, cabbage, and
beets. In addition, some payments were made for grass losses. However,
according to an FSA official, these payments were not for grazing
losses. (2) In analyzing crop disaster assistance payments, we did not
calculate payments per acre because data on the number of acres that
potentially were eligible for these payments were not available.
[A] These counties have not had large increases in crop production in
recent years and are located in two adjacent NRCS major land resource
areas.
[End of table]
According to USDA officials, a possible reason for the relatively high
crop insurance and disaster assistance payments in South Dakota
counties with the highest conversion rates is that these counties are
in areas that are more prone to drought and crop losses than other
major crop-producing counties. Drought has been the largest cause of
crop insurance indemnity payments nationwide from 1989 to 2004,
accounting for about 40 percent of the primary causes of total
indemnity payments.
Our 2005 report on crop insurance explains why areas that are prone to
frequent or severe crop losses may have relatively high crop insurance
costs.[Footnote 17] The crop insurance program has high premium
subsidies to encourage participation. Premium subsidies are calculated
as a percentage of the total premium and can be as high as 67 percent.
The subsidies shield producers from the full cost of growing crops in
these areas. Because premiums are higher in areas that are prone to
frequent or severe crop losses than in the major crop-producing
counties, premium subsidies have the effect of causing crop insurance
costs to be higher in these areas.
Farm Program Payments, Rising Crop Prices, and the Adoption of New
Farming Technologies Provide Incentives to Expand Crop Production on
Native Grasslands:
Federal farm program payments are an important factor in producers'
decisions to convert native grassland to cropland, but rising crop
prices and advances in crop production technology are also important
factors in these conversions. Specifically, increased crop prices, due
largely to rising ethanol demand, are important in producers'
decisions. In addition, the adoption of genetically modified crops as
well as new farming techniques have made cropping more profitable on
land previously considered to be marginally suitable or generally
unsuitable for crop production. Regarding farm program payments, our
analysis of crop production costs and returns and our review of
economic studies indicate that these payments are an important factor
in producers' conversion decisions. Moreover, the incentives farm
programs provide to convert grassland to cropland appear to be
inconsistent with USDA conservation programs that encourage producers
to either maintain grassland or convert cropland to grassland or
another conserving use.
Rising Crop Prices and Advanced Crop Production Technologies Are
Important Factors in Decisions to Convert Native Grassland to Cropland:
Increasing demand for crops used to produce ethanol and other renewable
fuels has caused crop prices to increase, increasing the profitability
of crop production and providing incentives for conversions. For
example, the price of a March 2007 corn futures contract on the Chicago
Board of Trade rose from $2.50 per bushel in September 2006 to $4.16
per bushel in January 2007, an increase of more than 66 percent. A May
2007 USDA study stated that the increased demand for renewable fuels
would result in continued expansion of crop acreage and bring new land
into crop production, particularly in the Corn Belt and the Northern
Plains.[Footnote 18] Furthermore, a June 2007 NASS report announced
that corn growers had planted 92.9 million acres of corn in 2007, 14.6
million acres more than were planted in 2006 and the highest total
since 1944.[Footnote 19] NASS stated that this increased corn acreage
was partially offset by reduced soybean acreage in the plains and the
Corn Belt. USDA and agricultural experts expect this demand to continue
to increase, and corn and other crop prices are expected to be
relatively high for several years. NRCS and FSA officials in states and
counties with the highest conversions of grassland to cropland
confirmed that crop prices strongly influence producers' conversion
decisions.
In addition, the availability of advanced crop production technologies,
including genetically modified crops, such as herbicide-resistant
soybeans, and new farming techniques, such as no-till planting,
contribute to producers' decisions to convert native grassland to
cropland. For example, herbicide-resistant soybeans became available to
farmers for the first time in 1996, and, according to USDA, usage
nationwide expanded to over 40 percent of soybean acreage in 1998 and
then to 87 percent by 2005 (95 percent in South Dakota). The use of
these soybean varieties makes weed control easier and has, in turn,
made no-till planting--a conservation practice that reduces soil
erosion and conserves moisture while also cutting fuel and labor costs-
-more feasible. These developments have reduced the cost of production
and made it more profitable to produce high-value crops, especially
corn and soybeans, in some areas that historically were considered
marginally suitable or generally unsuitable for crop production. FSA
and NRCS officials confirmed that advanced crop production technologies
strongly influence producers' conversion decisions.
Farm Program Payments Provide Incentives to Convert Native Grassland to
Cropland by Increasing Producers' Income and Reducing Their Financial
Risks:
Farm program payments, including crop insurance, crop disaster
assistance, and marketing assistance loan payments, are important
factors in producers' decisions to convert native grassland to cropland
because they reduce producers' financial risks and, in many cases,
increase producers' profits over maintaining grassland. To evaluate the
impact of farm program payments and other factors in producers'
conversion decisions, we prepared a partial budget analysis for a
hypothetical 160-acre tract in a South Dakota county--located in the
Prairie Pothole Region--that was among the state's highest counties in
conversions of grassland that had no cropping history in 2005 and 2006.
A partial budget analysis evaluates the economic effects of making an
adjustment to part of the farm operation, such as changing what is
produced or buying new machinery. Specifically, we compared the
estimated costs and returns for 2003 through 2007 from 160 acres of
native grassland--used for grazing as part of a cow-calf operation--to
the costs and returns if the same land had been converted to cropland
in 2003 and used to produce corn, soybeans, and spring wheat through
2007. This period exhibited a variety of yield and price scenarios as
well as farm program payments and thus may illustrate how the
significance of farm program payments can change from year to year.
We found that for certain years, high crop prices as well as farm
program payments would provide economic incentives for a producer to
convert native grassland used for grazing in a cow-calf operation to a
cropping operation. In 3 of the 5 years, the conversion from grazing to
cropping would have resulted in increased income. In the other 2 years,
the conversion would have resulted in reduced income largely because
cattle prices were high relative to crop prices and farm program
payments were lower than in the other years. Without any farm program
payments, income would have increased only in 2007, but in view of
projections that crop prices will remain relatively high, this increase
in income without farm program payments may continue for several
years.[Footnote 20] However, even with high crop prices, farm program
payments from crop insurance and crop disaster assistance likely will
continue to be a relevant factor in conversion decisions because of the
need for protection against adverse crop production risks, such as
drought. Table 5 shows the net change in income from shifting to crop
production from a cow-calf operation on a 160-acre parcel of land, with
and without farm program payments (crop insurance, crop disaster
assistance, and marketing assistance loan payments).[Footnote 21] The
table also shows corn prices and yields as well as calf and cow prices
during this period.
Table 5: Estimated Net Change in Income for a Shift to Crop Production
from a Cow-Calf Grazing Operation on a 160-Acre Tract in Central South
Dakota, 2003-2007:
Factors: Net change in income[A], With farm program payments (crop
insurance, crop disaster assistance, and marketing assistance loan
payments);
2003: $3,761.20;
2004: ($3,602.75);
2005: ($4,834.66);
2006: $2,366.35;
2007: $2,099.47.
Factors: Net change in income[A], Without farm program payments (crop
insurance, crop disaster assistance, and marketing assistance loan
payments);
2003: ($8,499.29);
2004: ($6,631.58);
2005: ($7,634.62);
2006: ($6,729.35);
2007: $2,099.47.
Factors: Selected prices and yields, Corn price ($ per bushel)[B];
2003: $2.36;
2004: $1.64;
2005: $1.76;
2006: $3.37;
2007: $3.52.
Factors: Selected prices and yields, Corn yield (bushels per acre)[C];
2003: 37.1;
2004: 84.4;
2005: 81.2;
2006: 41.5;
2007: 69.0.
Factors: Selected prices and yields, Calf price ($ per 100 pounds)[D];
2003: $111.38;
2004: $121.59;
2005: $136.85;
2006: $113.16;
2007: $124.48.
Factors: Selected prices and yields, Cow price ($ per head)[E];
2003: $616.50;
2004: $750.83;
2005: $839.27;
2006: $797.55;
2007: $769.00.
Source: GAO's analysis using data from South Dakota State University,
NRCS, NASS, RMA, FSA, and Drovers' Inc.
Notes: (1) We assumed a decision was made to convert to crop production
in 2003 and carried forward through 2007. (2) The net change in income
is the result of comparing the alternate income streams from cropping
(corn, soybeans, and spring wheat) versus grazing (cow-calf operation).
(3) Both herd liquidation and conversion costs were amortized over a 5-
year period from 2003 to 2007 at a 6 percent rate of interest.
[A] While the 2003 to 2006 results are retrospective, the 2007 crop had
not been harvested as of July 2007. On the basis of July 2007 crop
prices and USDA estimates, we assumed no marketing assistance loan
payments would be made for 2007. We did not include any crop insurance
or disaster assistance payments for 2007, although such payments may be
made in the future.
[B] Corn prices for 2003 through 2006 are yearly averages of weekly
cash prices in central South Dakota from the South Dakota State
University extension grain marketing service. Corn prices for 2007 are
average weekly cash prices for the Central South Dakota region from
January to July 2007, from South Dakota State University extension
service.
[C] Corn yields for 2007 are a moving average of NASS county yields,
adjusted for soil productivity.
[D] For 2003 through 2006, calf prices are November South Dakota
stocker cattle prices, monthly average, obtained from South Dakota
State University's "Cattle Market Review," June 22, 2007, for 500 to
600 pound steers. For 2007, calf prices are average monthly prices for
the first 6 months of 2007, January through June.
[E] Cow prices are bred female prices for "young and middle aged" bred
cows from the central region of the United States which includes South
Dakota, obtained from Drovers. For 2007, bred female prices are average
monthly prices for the first 5 months of 2007, January through May.
[End of table]
We did not attempt to evaluate the social, environmental, and wildlife
habitat costs and benefits of this conversion. Furthermore, although
crop prices are projected to continue to rise over the next several
years, the likelihood of prices remaining at such high levels,
especially in conjunction with high levels of production, may not
materialize. In the absence of data on future weather patterns, yields,
and commodity prices, we did not project future rates of return.
Moreover, we did not project future rates of conversion because we
cannot speculate on many of the factors that enter into producers' land
use decisions, such as their aversion to risk in the presence of
significant potential crop yield variability, although the stabilizing
effect of crop insurance would tend to lessen risk concerns, especially
compared to livestock grazing. Nevertheless, this analysis demonstrates
that there have been economic incentives for producers, at least in the
short run, to shift into crop production on native grassland. It also
illustrates the importance of farm program payments in years of lower
crop prices or yields. Appendix IV provides more information on our
partial budget analysis.
In addition to our partial budget analysis, several economic studies we
reviewed found that farm program payments influence producers'
conversion decisions because they increase the expected profitability
of cropping land while lowering the risks. For example, a study by
USDA's Economic Research Service (ERS) found that increased crop
insurance subsidies in the mid-1990s encouraged producers to expand
crop production in the contiguous 48 states by an estimated 2.5 million
acres, with most of the land coming from pastureland and other
grassland. Another recent paper, by Iowa State University agricultural
economists, concluded that the reduction in risk by crop insurance and
commodity programs creates incentives for farmers and landlords to
focus on growing the commodities supported by these programs. In
addition, some of the economic studies we reviewed raised the
possibility that land value appreciation due to farm program payments
may be another economic incentive for farmers to convert native
grassland to cropland. Since the value of agricultural land depends, in
part, upon expected future earnings from farming, purchasers of land
will pay a higher price for land that is expected to provide a future
stream of farm program payments. For example, ERS reported that the
effect of farm program payments on land values varies widely throughout
the United States but that increases are highest in the Northern
Plains. For more detailed summaries of these and other studies that we
examined, see appendix V.
Most of the FSA and NRCS state and local officials in Montana,
Nebraska, North Dakota, and South Dakota confirmed that farm program
payments, specifically crop insurance, crop disaster assistance, and
marketing assistance loan payments are important--although not always
the most important--factors in producers' conversion decisions. In
particular, among the farm programs, the officials noted the importance
of crop insurance because it reduces the risk of growing crops. Nearly
all of these officials believed that farm program payments play a
greater role in producer decisions when crop prices are lower. For
example, several officials noted that a reduction in program payments
would have had a more pronounced effect in reducing crop conversions 2
years ago, before the prospect of increased demand for ethanol
contributed to higher corn prices.
Incentives to Convert Grassland May Work at Cross Purposes with USDA
Conservation Programs:
The incentives provided by farm program payments appear to be
inconsistent with USDA conservation programs, such as the Wetlands
Reserve Program,[Footnote 22] the Grassland Reserve Program,[Footnote
23] and CRP. These conservation programs, among other things, pay
producers and landowners to either maintain grassland or convert
cropland to grassland or another conserving use. However, these
programs appear to be at odds with farm programs that provide
incentives for conversions of grassland to cropland. For example, NRI
data on South Dakota CRP enrollments--which represent conversions of
cropland to grassland--and conversions of grassland to cropland
illustrate this apparent inconsistency. From 1982 through 1997, 1.69
million acres of cropland in South Dakota were enrolled in CRP--with
almost all of this acreage planted in grasses--at a total government
cost of about $633 million. However, during the same period, 1.82
million acres of grassland in South Dakota were converted to cropland.
About half of this acreage had been rangeland, generally supporting
native grasses and vegetation, and the other half pastureland. Other
states had similar patterns during this period. For example, North
Dakota had CRP enrollments of 2.8 million acres, CRP costs of about
$973 million, and grassland conversions to cropland of 1.16 million
acres. Montana had CRP enrollments of 2.7 million acres, CRP costs of
about $957 million, and conversions to cropland of 1.35 million acres.
Sodbuster Has Had Little Impact on Native Grassland Conversions:
Sodbuster has had little impact in limiting the conversion of native
grassland to cropland, in part because much of the native grassland
converted in recent years is not highly erodible and therefore not
subject to Sodbuster. According to USDA officials, even in most cases
where Sodbuster applies, the costs associated with Sodbuster compliance
have not been enough to deter producers from converting the land. USDA
and some stakeholder organizations have suggested a proposal known as
Sod Saver that would discourage native grassland conversions by making
converted land ineligible for farm program payments.
Much of the Native Grassland Converted in Recent Years Was Not Subject
to Sodbuster:
Much of the native grassland converted to cropland in recent years is
classified as non-highly erodible land and thus is not subject to
Sodbuster. NRI data on the percentage of rangeland converted to
cropland and classified as highly erodible provide an approximation of
the percentage of conversions that are subject to Sodbuster. According
to NRI data, between 1997 and 2003, an estimated 59 percent of the
rangeland converted to cropland in the Northern Plains production
region--encompassing Kansas, Nebraska, North Dakota, and South Dakota-
-was classified as non-highly erodible. In the Southern Plains and the
Mountain regions, which also have large amounts of rangeland, NRI data
for this period indicate an estimated 43 percent and 47 percent,
respectively, of the rangeland acres that producers converted were
classified as non-highly erodible. In addition, according to our
analysis of NRCS records for selected Nebraska counties that have had
relatively high conversion rates, slightly over half of the land
parcels converted in those counties between 2003 and 2006 were
classified as non-highly erodible. Because non-highly erodible land is
not subject to Sodbuster, producers who convert such land do not have
to bear the cost of applying conservation systems in order to maintain
farm program benefits.
Even When Planned Conversions Are Subject to Sodbuster, Producers Are
Not Usually Deterred:
According to FSA and NRCS officials, even when native grassland that is
to be converted is classified as highly erodible, producers generally
perceive that the potential profits from cropping the land outweigh the
potential costs of controlling soil erosion as required by Sodbuster.
As such, officials in Montana, Nebraska, North Dakota, and South Dakota
counties that have had relatively high conversion rates said that the
costs associated with meeting Sodbuster's soil erosion standards
usually do not discourage native grassland conversion, especially when
crop prices are high and crop production is profitable. Specifically,
these officials said Sodbuster rarely or never deterred conversions.
According to these officials, the cost of complying with Sodbuster has
been reduced by new crop production technologies. For example, almost
all of the officials cited no-till planting as a low-cost management
practice that controls soil erosion sufficiently to meet Sodbuster
requirements and added that the development of herbicide-resistant
crops has facilitated producers' adoption of no-till planting by making
it easier to control weeds without using tillage.
The views expressed by the officials we spoke with are generally
consistent with the responses of local NRCS officials to our 2002
survey, in which we asked them to rate the effectiveness of Sodbuster
in limiting the conversion of native grassland.[Footnote 24] The survey
results for four states with relatively high rates of conversions--
Montana, Nebraska, North Dakota, and South Dakota--are shown in table
6. As indicated in the table, the majority of officials in three of
these states--Montana, Nebraska, and South Dakota--responded that
Sodbuster was slightly or not effective in limiting native grassland
conversion. Nearly 44 percent of officials in North Dakota provided a
similar response.
Table 6: Local NRCS Officials' Responses to GAO Survey Question on the
Effectiveness of Sodbuster in Limiting the Conversion of Native
Grassland to Cropland (total in percent):
State: Montana;
Extremely effective: 0;
Very effective: 11.9;
Moderately effective: 7.1;
Somewhat effective: 28.6;
Slightly or not effective: 52.4.
State: Nebraska;
Extremely effective: 0;
Very effective: 4.1;
Moderately effective: 11.0;
Somewhat effective: 15.1;
Slightly or not effective: 69.9.
State: North Dakota;
Extremely effective: 0;
Very effective: 16.7;
Moderately effective: 18.8;
Somewhat effective: 20.8;
Slightly or not effective: 43.8.
State: South Dakota;
Extremely effective: 1.9;
Very effective: 7.7;
Moderately effective: 13.5;
Somewhat effective: 17.3;
Slightly or not effective: 59.6.
Source: GAO survey results.
[End of table]
USDA and Some Stakeholder Organizations Have Offered a Proposal to
Discourage Grassland Conversions:
To discourage future conversions, USDA and some stakeholder
organizations have suggested a proposal known as Sod Saver that would
make certain grassland--primarily native grassland--ineligible for farm
program payments if it is converted to cropland. USDA's proposed
legislative language--issued in April 2007--applies to rangeland and
native grassland not used for crop production at any time during the
previous 6 years preceding the effective date of the 2007 farm bill. If
such land is converted to crop production, it would be permanently
ineligible for a wide range of farm program payments, including direct
and countercyclical, marketing assistance loan, conservation, disaster
assistance, and crop insurance payments. According to USDA's proposal,
Sod Saver is needed because, among other things, grasslands provide
important ecological functions and the rate of conversion to cropland
could increase greatly over the next several years as increased
production of biofuels boosts the demand for corn and other crops.
Most NRCS state and local officials we spoke with suggested that
barring newly converted cropland from farm program payments, as called
for under Sod Saver, would be a deterrent to new conversions in their
counties. However, FSA state and local officials we interviewed were
less certain than the NRCS officials about Sod Saver's potential
impact. While generally acknowledging that barring farm program
payments would affect some conversion decisions, these officials placed
more emphasis on the impact of crop prices and advanced production
technologies. Officials from both agencies agreed that Sod Saver's
impact would be less when crop prices are high than when they are low.
Certain farm, crop, and livestock organizations have expressed
opposition to USDA's Sod Saver proposal. These organizations include
the American Farm Bureau Federation, National Association of Wheat
Growers, National Corn Association, National Cotton Council, National
Pork Producers Council, United Egg Producers, and USA Rice Federation.
For example, a crop organization official we interviewed said that
advances in crop production technology continue to make more land
suitable for cropping and that it would be inequitable for some crop
producers to receive farm program payments on their cropland while
others could not. In a May 15, 2007, letter, organizations opposed to
the Sod Saver proposal expressed their concerns. Among other things,
they said:
* Sod Saver would constrain farmers' ability to adapt to changing
market conditions related to the growing demand for crops to produce
food and renewable fuels.
* Sod Saver would reduce the amount of farmable land available for
beginning farmers.
* Current information on the extent of conversions is insufficient to
justify the Sod Saver proposal.
* Existing policy--referring to the current conservation compliance
provisions, including Sodbuster--is effectively controlling soil
erosion on highly erodible land.
On the other hand, the Sod Saver approach is supported by a number of
wildlife, environmental, and conservation organizations, as well as
certain cattle industry interests. These organizations include, Ducks
Unlimited, Pheasants Forever, the North Dakota and South Dakota
chapters of the Wildlife Society, and the South Dakota Cattlemen's
Association. In particular, wildlife organizations have emphasized that
Sod Saver would help maintain native grassland habitat that is
important for waterfowl and grassland birds, especially in Prairie
Pothole Region areas of Montana, North Dakota, and South Dakota. In
addition, a cattle industry official we spoke with expressed concern
that farm program payments encourage conversions and subsidize crop
production, putting cattle producers at a disadvantage relative to crop
producers in the competition for land. In a May 29, 2007, letter, a
coalition of representatives from Montana, North Dakota, and South
Dakota wildlife organizations and agencies responded to arguments
against the Sod Saver proposal. Among other things, they said:
* Sod Saver would not prevent farmers from responding to market signals
because it would allow conversions to cropland.
* Beginning farmers would not have good prospects for success if they
grew crops on marginal lands that have not been cropped previously, and
beginning ranchers would benefit from Sod Saver because it would result
in more grassland being available to them.
* Available FSA and NRCS data and anecdotal information about
conversions are sufficient to justify the Sod Saver proposal.
* Soil erosion is still a significant problem in North Dakota and South
Dakota, and the conservation compliance provisions, including
Sodbuster, do not prevent the conversion of native grassland to
cropland.
Conclusions:
In the absence of more comprehensive and current data, policymakers and
stakeholders cannot fully understand the extent of conversions of
native grassland to cropland or how farm program payments and other
factors influence producers' conversion decisions. More complete
information, especially at the county or local level, would enable
stakeholders to identify where conversions are occurring and the
environmental implications. In addition, having this information would
be a first step in assessing the additional farm program costs that
result from conversions. Such knowledge can help in developing policies
balancing the environmental and economic benefits of grasslands against
the rising demand for food, feed, fiber, and fuel from renewable
sources. In developing the means to collect such information, USDA
could draw on the experiences of FSA state and county offices in
Montana, North Dakota, and South Dakota, which have incorporated the
collection of conversions data into their annual acreage reporting
process. In addition, the dynamic between USDA farm program payments
and conservation programs needs to be better understood. Available data
suggest that USDA's programs that increase the profitability of
cropping and its programs that encourage conservation of rural land may
be working at cross purposes with one another. Specifically, some
conservation programs, such as CRP, provide incentives for conversions
of cropland to grassland, while farm program payments may have the
unintended consequence of providing incentives for conversions of
grassland to cropland. Such apparent inconsistency undermines USDA's
conservation goals and the most effective use of funds. While we have
identified possible cases where USDA's farm program payments work at
cross purposes with its conservation programs, there could be others.
Any such inconsistencies should be identified and examined in order to
better inform the Congress of opportunities to improve the
effectiveness and efficiency of these programs.
Recommendations for Executive Action:
To provide policymakers and stakeholders with more comprehensive and
current information on the extent of native grassland conversions to
cropland, the associated farm program costs of these conversions, and
their impact on natural resources, we recommend that USDA annually
track native grassland conversions to cropland in those geographic
areas where such conversions can occur.
To better understand the extent to which farm programs, such as crop
insurance, and conservation programs, such as the Conservation Reserve
Program, may be working at cross purposes, we recommend that the
Secretary of Agriculture direct the Administrator of the Economic
Research Service, the Administrator of the Farm Service Agency, and the
Chief of the Natural Resources Conservation Service to jointly study
this issue and report their findings to the Secretary and the Congress.
Agency Comments and Our Evaluation:
We provided a draft of this report to USDA for review and comment. USDA
provided oral comments through the Chief, NRCS, on September 5, 2007,
indicating general agreement with the report's findings and
recommendations. USDA also said it wanted to ensure that GAO was aware
that with few exceptions, the crop insurance program has strict
criteria on where converted land may be insured. USDA noted that land
generally must have a history of being cropped in at least 1 of the 3
previous crop years in order to be eligible for crop insurance
coverage, unless such acreage was not cropped because it was enrolled
in another USDA program. Thus, newly converted grassland that has not
been cropped in the previous 3 crop years or enrolled in another
program is only insurable by written agreement as approved by USDA's
Risk Management Agency. According to USDA, written agreements go
through an underwriting process that is much more restrictive than for
standard policies, resulting in reduced coverage and possible denial of
coverage. For example, the insurance guarantee is generally based on
the percent of the average county yield. If the expected yield for the
converted acreage is less than 50 percent of the county average, the
request for insurance is generally denied. In addition, USDA said
certain types of coverage, such as prevented planting coverage, are not
available for any written agreement approved for newly converted land.
We recognize that USDA has criteria on where converted land may be
insured. However, our work found that RMA does not have a method and
the information needed to enforce its policy that land must have been
cropped in at least 1 of the 3 previous crop years to be eligible for
crop insurance coverage. Specifically, according to RMA officials we
interviewed, RMA has limited ability to enforce these restrictions on
insurance coverage because it lacks necessary information on land
parcels' location and cropping history. Thus, the restrictions may not
prevent ineligible converted land from being covered. Moreover, even if
RMA were able to enforce these restrictions, the converted land would
be eligible for crop insurance coverage in the year after the
conversion.
USDA also provided technical corrections, which we have incorporated
into the report as appropriate.
As arranged with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
from its issue date. At that time we will send copies of this report to
appropriate congressional committees; the Secretary of Agriculture; the
Director, Office of Management and Budget; and other interested
parties. In addition, this report will be available at no charge on
GAO's Web site at [hyperlink, http://www.gao.gov].
If you or your staff have any questions about this report, please
contact me at (202) 512-3841 or shamesl@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. Key contributors to this report are
listed in appendix VI.
Signed by:
Lisa Shames:
Director, Natural Resources and Environment:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
At the request of the Chairman, Senate Committee on Agriculture,
Nutrition, and Forestry, and the Chairman, House Committee on
Agriculture, we reviewed issues related to grassland conversions.
Specifically, we determined (1) the extent of grassland conversions to
cropland and the cost of farm program payments related to these newly
converted cropland acres, (2) the relative importance of farm program
payments versus other factors in producers' decisions to convert
grassland to cropland, and (3) any impact the Sodbuster provision has
had on limiting grassland conversions.
To determine the extent of grassland conversions to cropland, we
examined land use data for 1982 through 2003 from the Natural Resources
Conservation Service's (NRCS) National Resources Inventory
(NRI).[Footnote 25] We supplemented this information with land use data
gathered by the U.S. Department of Agriculture's (USDA) National
Agricultural Statistics Service (NASS).[Footnote 26] In addition, we
analyzed data gathered by USDA's Farm Service Agency (FSA) state and
county offices in Montana, North Dakota, and South Dakota on acres
converted from grassland with no cropping history to cropland for 2005
and 2006. We also reviewed a collaborative study on conversions of
native grassland to cropland in the Prairie Pothole Region prepared by
Ducks Unlimited, Inc., a private advocacy group supporting the
protection and restoration of wetlands and waterfowl habitat, in
conjunction with the U.S. Fish and Wildlife Service (FWS); the South
Dakota Department of Game, Fish and Parks; The Nature Conservancy; and
the University of Montana.[Footnote 27] In addition, we reviewed other
relevant studies of grassland conversions to cropland, including a 2001
study[Footnote 28] by Texas A&M University and other researchers and a
1999 study by University of Wisconsin researchers.[Footnote 29] We
interviewed USDA officials from the Economic Research Service (ERS),
FSA, NASS, NRCS, and the Risk Management Agency (RMA). We also
interviewed FWS state officials in Colorado, Montana, Nebraska, North
Dakota, South Dakota, and Texas; state government officials; and
officials at land grant universities, including Iowa State University,
Kansas State University, North Dakota State University, South Dakota
State University, and Texas A&M University. To determine the cost of
farm program payments on converted land, we interviewed ERS and FSA
officials and analyzed RMA crop insurance and FSA disaster assistance
payments data. Specifically, we analyzed crop insurance and crop
disaster assistance payments data in relation to 2005 and 2006 data on
conversions of grassland that had no prior cropping history to cropland
for all South Dakota counties. We selected South Dakota counties
because conversion data were available by county for 2005 and 2006, and
conversions have received considerable attention in the state. In
conducting our analysis, we assumed that the counties with the most
acres converted during those years were indicative of the counties with
the most conversions during 1997 through 2006.
To determine the relative importance of the availability of farm
program payments in producers' decisions to convert grassland to
cropland, we identified and reviewed studies that directly examined the
economic incentives of farm program payments on a producer's decision
to convert grasslands to cropland, as well as related studies that
examine the effects of farm program payments on farm profitability and
risk. To evaluate how factors such as conversion costs, expected crop
prices, crop production costs and technology, and farm program payments
affect conversion decisions, we analyzed farm-level budget data for a
hypothetical 160 acres in a South Dakota county that had a relatively
high conversion rate during 2005 and 2006. The methodology for
conducting this analysis was reviewed by ERS, NRCS, and land grant
university agricultural economists and is discussed in appendix IV. In
addition, we interviewed FSA and NRCS officials in Montana, Nebraska,
North Dakota, and South Dakota to obtain their views of the importance
of farm program payments and other factors in producers' decisions to
convert native grassland to cropland.
To determine the impact the Sodbuster provision has had on grassland
conversions, we examined NRI land use data for 1982 through 1997 and
1997 through 2003 showing conversions of rangeland to highly erodible
and non-highly erodible cropland by USDA crop production regions. We
supplemented these data by analyzing available NRCS data on whether
land that producers intended to convert was highly erodible for
selected Nebraska counties.[Footnote 30] We selected these counties
because the Nebraska NRCS state office had identified them as being in
areas that recently had relatively high conversion rates. In addition,
we conducted interviews with FSA and NRCS officials in Montana,
Nebraska, North Dakota, and South Dakota to obtain their views of the
impact of Sodbuster on producers' conversion decisions. We compared
information obtained in these interviews with comments on Sodbuster's
effectiveness submitted by NRCS field office officials in response to
GAO's nationwide 2002 survey on conservation compliance
issues.[Footnote 31] We also interviewed FWS officials in Colorado,
Montana, Nebraska, North Dakota, South Dakota, and Texas, as well as
officials from industry stakeholder organizations, including the South
Dakota Corn Growers Association, South Dakota Soybean Association,
South Dakota Cattlemen's Association, and Montana Grain Growers
Association, to obtain their views on Sodbuster's effectiveness and
proposed legislative changes to reduce conversions. Finally, to
identify proposed legislation that could affect payments that producers
receive on newly converted land, we reviewed USDA's 2007 farm bill
proposals and position papers submitted by environmental, conservation,
and commodity groups, including Ducks Unlimited, Pheasants Forever, the
North Dakota and South Dakota Chapters of The Wildlife Society, the
North Dakota Game and Fish Department, the American Farm Bureau
Federation, the National Corn Growers Association, the National Pork
Producers Council, and the National Association of Wheat Growers.
We performed our work between October 2006 and August 2007 in
accordance with generally accepted government auditing standards. We
performed data reliability assessments for (1) FSA state office data on
conversions of grassland that had no prior cropping history to cropland
in Montana, North Dakota, and South Dakota, (2) crop insurance data
from RMA's Summary of Business database, and (3) FSA disaster
assistance payments data. We determined that data from each of these
sources were sufficiently reliable. For the data obtained from the
other sources noted above, we did not independently verify the data,
but we discussed with these sources, as appropriate, the measures they
take to ensure the accuracy of these data. For the purposes for which
the data were used in this report, these measures seemed reasonable.
[End of section]
Appendix II: National Resources Inventory Data on Net Changes in U.S.
Land Use, 1982-2003:
The U.S. Department of Agriculture's Natural Resource Conservation
Service's National Resources Inventory is a statistical survey of
natural resource conditions and trends on nonfederal land in the United
States. Nonfederal lands include privately owned lands, tribal and
trust lands, and lands controlled by state and local governments. The
NRI provides data on net changes in rangeland, pastureland, and other
land types over time, as well as on conversions of rangeland and
pastureland to cropland over time.[Footnote 32] Table 7 shows the net
changes in cropland, Conservation Reserve Program (CRP) land,
rangeland, pastureland, and developed land, from 1982 to 2003 for the
48 contiguous states. The changes illustrated in the table are net
changes, which do not indicate the number of acres converted from
rangeland and pastureland to cropland.
Table 7: Net Changes in Rangeland, Pastureland, and Other Land Types,
1982-2003:
Year: 1982 (acres in millions with margins of error);
Cropland: 419.9 (417.8-422.0);
CRP land: 0 (NA);
Rangeland: 415.5 (412.0-419.0);
Pastureland: 131.1 (129.7-132.5);
Developed land: 72.9 (72.1-73.7).
Year: 1992 (acres in millions with margins of error);
Cropland: 381.3 (379.3-383.3);
CRP land: 34.0 (33.8-34.2);
Rangeland: 406.8 (403.5-410.1);
Pastureland: 125.2 (123.9-126.5);
Developed land: 86.5 (85.5-87.5).
Year: 1997 (acres in millions with margins of error);
Cropland: 376.4 (374.4-378.4);
CRP land: 32.7 (32.7-32.7);
Rangeland: 404.9 (401.6-408.2);
Pastureland: 119.5 (118.3-120.7);
Developed land: 97.6 (96.6-98.6).
Year: 2003 (acres in millions with margins of error);
Cropland: 367.9 (365.5-370.3);
CRP land: 31.5 (31.2-31.8);
Rangeland: 405.1 (401.6-408.6);
Pastureland: 117.0 (115.2-118.8);
Developed land: 108.1 (106.7-109.5).
Change,1982-2003 (acres in millions);
Cropland: -52;
CRP land: 31.5;
Rangeland: -10.4;
Pastureland: -14.1;
Developed land: 35.2.
Source: GAO's analysis of NRCS's NRI data.
Notes: (1) The amounts in parentheses represent the two-sided 95
percent confidence interval. (2) This table does not include other land-
use categories, which did not have large changes during this period.
These land-use categories are forest land, water areas, and other rural
areas.
[End of table]
[End of section]
Appendix III: Census of Agriculture Data on Net Changes in Uses of Land
in Farms for the United States and Selected States:
The Census of Agriculture, conducted every 5 years by USDA's National
Agricultural Statistics Service, is a census of agricultural
producers.[Footnote 33] It gathers information about the nation's
agricultural production and provides agricultural data for every state
and county in the United States.
Tables 8 and 9 show net changes in uses of land in farms between the
years 1978 and 1992, and 1997 and 2002, as reported by the Census of
Agriculture. Table 8 shows net changes in land use at the national
level, while table 9 shows changes in land use for states that--
according to USDA's National Resources Inventory--have large amounts of
rangeland and cropland. Data for 1978 to 1992 are not comparable to
data for 1997 to 2002 and are listed separately in the tables. This is
because a different methodology was used for the latter time frame to
more completely capture all relevant producers.
In tables 8 and 9, "Total cropland" includes cropland harvested,
cropland used only for pasture or grazing, idle cropland,[Footnote 34]
cropland on which all crops failed or were abandoned, and cropland
cultivated in summer fallow. "Pastureland and rangeland" includes all
grazable land that does not qualify as cropland pasture or woodland
pasture. Pastureland and rangeland includes both native grassland and
grassland composed of introduced grasses. Finally, "Total land in
farms" consists primarily of agricultural land used for crops, pasture,
or grazing.
Table 8: Net Changes in Uses of Land in U.S. Farms, 1978-1992 and 1997-
2002 (acres in millions):
Year: 1978;
Total cropland: 453.6;
Pastureland and rangeland[A]: 431.0;
Total land in farms: 1011.5.
Year: 1982;
Total cropland: 445.1;
Pastureland and rangeland[A]: 416.0;
Total land in farms: 983.5.
Year: 1987;
Total cropland: 442.9;
Pastureland and rangeland[A]: 408.4;
Total land in farms: 961.8.
Year: 1992;
Total cropland: 435.0;
Pastureland and rangeland[A]: 409.1;
Total land in farms: 943.0.
Year: Change in acres,1978-1992;
Total cropland: - 18.6;
Pastureland and rangeland[A]: -21.9;
Total land in farms: -68.5.
Year: 1997;
Total cropland: 444.9;
Pastureland and rangeland[A]: 396.6;
Total land in farms: 952.5.
Year: 2002;
Total cropland: 433.9;
Pastureland and rangeland[A]: 393.7;
Total land in farms: 936.1.
Year: Change in acres, 1997-2002;
Total cropland: - 11.0;
Pastureland and rangeland[A]: -2.9;
Total land in farms: -16.5.
Source: GAO's analysis of NASS's Census of Agriculture data.
[A] The full name of this category is Pastureland and rangeland, other
than cropland and woodland pastured.
[End of table]
Table 9: Net Changes in Uses of Land in Farms in States with Large
Amounts of Rangeland and Pastureland, 1978-1992 and 1997-2002 (acres in
millions):
State: Colorado;
Year: 1978;
Total cropland: 10.6;
Pastureland and rangeland: 22.7;
Total land in farms: 35.3.
State: Colorado;
Year: 1992;
Total cropland: 10.9;
Pastureland and rangeland: 21.3;
Total land in farms: 34.0.
State: Colorado;
Year: Change in acres, 1978-1992; Total cropland: 0.3;
Pastureland and rangeland: -1.4;
Total land in farms: - 1.3.
State: Colorado;
Year: 1997;
Total cropland: acres in millions: 10.8;
Pastureland and rangeland:
acres in millions: 19.4;
Total land in farms: acres in millions: 32.3.
State: Colorado;
Year: 2002;
Total cropland: acres in millions: 11.5;
Pastureland and rangeland:
acres in millions: 17.3;
Total land in farms: acres in millions: 31.1.
State: Colorado;
Year: Change in acres, 1997-2002;
Total cropland: 0.7;
Pastureland and rangeland: -2.1;
Total land in farms: -1.3.
State: Kansas;
Year: 1978;
Total cropland: 29.8;
Pastureland and rangeland: 15.5;
Total land in farms: 47.5.
State: Kansas;
Year: 1992;
Total cropland: 31.1;
Pastureland and rangeland: 13.8;
Total land in farms: 46.7.
State: Kansas;
Change in acres, 1978-1992;
Total cropland: 1.3;
Pastureland and rangeland: -1.8;
Total land in farms: - 0.8.
State: Kansas;
Year: 1997;
Total cropland:31.1;
Pastureland and rangeland: 13.6;
Total land in farms: 46.7.
State: Kansas;
Year: 2002;
Total cropland: 29.5;
Pastureland and rangeland: 15.5;
Total land in farms: acres in millions: 47.2.
State: Kansas;
Year: Change in acres, 1997-2002;
Total cropland: -1.5;
Pastureland and rangeland: 1.9;
Total land in farms: 0.6.
State: Montana;
Year: 1978;
Total cropland: 16.2;
Pastureland and rangeland: 42.4;
Total land in farms: 61.7.
State: Montana;
Year: 1992;
Total cropland: 17.5;
Pastureland and rangeland: 39.3;
Total land in farms: 59.6.
State: Montana;
Year: Change in acres, 1978-1992;
Total cropland: 1.3;
Pastureland and rangeland: -3.1;
Total land in farms: - 2.0.
State: Montana;
Year: 1997;
Total cropland: 18.2;
Pastureland and rangeland: 37.2;
Total land in farms: acres in millions: 58.4.
State: Montana;
Year: 2002;
Total cropland: 18.3;
Pastureland and rangeland: 38.2;
Total land in farms: 59.6.
State: Montana;
Year: Change in acres, 1997-2002;
Total cropland: 0.8;
Pastureland and rangeland: 1.1;
Total land in farms: 1.2.
State: Nebraska;
Year: 1978;
Total cropland: 22.3;
Pastureland and rangeland: 22.1;
Total land in farms: 46.1.
State: Nebraska;
Year: 1992;
Total cropland: 22.4;
Pastureland and rangeland: 20.6;
Total land in farms: 44.4.
State: Nebraska;
Year: Change in acres, 1978-1992;
Total cropland: 0.1;
Pastureland and rangeland: -1.6;
Total land in farms: - 1.7.
State: Nebraska;
Year: 1997;
Total cropland: 22.6;
Pastureland and rangeland: 21.6;
Total land in farms: 45.9.
State: Nebraska;
Year: 2002;
Total cropland: 22.5;
Pastureland and rangeland: 21.9;
Total land in farms: 45.9.
State: Nebraska;
Year: Change in acres, 1997-2002;
Total cropland: -0.1;
Pastureland and rangeland: 0.3;
Total land in farms: 0.05.
State: New Mexico;
Year: 1978;
Total cropland: 2.3;
Pastureland and rangeland: 42.5;
Total land in farms: 47.9.
State: New Mexico;
Year: 1992;
Total cropland: 2.3;
Pastureland and rangeland: 42.0;
Total land in farms: 46.8.
State: New Mexico;
Year: Change in acres, 1978-1992;
Total cropland: -0.004;
Pastureland and rangeland: -0.5;
Total land in farms: -1.1.
State: New Mexico;
Year: 1997;
Total cropland: 2.3;
Pastureland and rangeland: 41.0;
Total land in farms: 46.2.
State: New Mexico;
Year: 2002;
Total cropland: 2.6;
Pastureland and rangeland:39.1;
Total land in farms: 44.8.
State: New Mexico;
Year: Change in acres, 1997-2002;
Total cropland: 0.3;
Pastureland and rangeland: -1.8;
Total land in farms: -1.4.
State: North Dakota;
Year: 1978;
Total cropland: 28.6;
Pastureland and rangeland: 10.8;
Total land in farms: 41.7.
State: North Dakota;
Year: 1992;
Total cropland: 27.5;
Pastureland and rangeland: 10.3;
Total land in farms: 39.4.
State: North Dakota;
Year: Change in acres, 1978-1992;
Total cropland: -1.1;
Pastureland and rangeland: -0.5;
Total land in farms: - 2.3.
State: North Dakota;
Year: 1997;
Total cropland: 27.4;
Pastureland and rangeland: 10.3;
Total land in farms: 39.7.
State: North Dakota;
Year: 2002;
Total cropland:26.5;
Pastureland and rangeland: 11.0;
Total land in farms: 39.3.
State: North Dakota;
Year: Change in acres, 1997-2002;
Total cropland: -0.9;
Pastureland and rangeland: 0.7;
Total land in farms: -0.4.
State: Oklahoma;
Year: 1978;
Total cropland: 14.4;
Pastureland and rangeland: 16.5;
Total land in farms: 33.7.
State: Oklahoma;
Year: 1992;
Total cropland: 14.5;
Pastureland and rangeland: 15.1;
Total land in farms: 32.1.
State: Oklahoma;
Year: Change in acres, 1978-1992;
Total cropland: 0.2;
Pastureland and rangeland: -1.5;
Total land in farms: - 1.6.
State: Oklahoma;
Year: 1997;
Total cropland: 15.5;
Pastureland and rangeland: 15.5;
Total land in farms: 34.1.
State: Oklahoma;
Year: 2002;
Total cropland: 14.8;
Pastureland and rangeland: 15.7;
Total land in farms:33.7.
State: Oklahoma;
Year: Change in acres, 1997-2002;
Total cropland: -0.6;
Pastureland and rangeland: 0.2;
Total land in farms: -0.4.
State: South Dakota;
Year: 1978;
Total cropland: 18.7;
Pastureland and rangeland: 24.2;
Total land in farms: 44.4.
State: South Dakota;
Year: 1992;
Total cropland: 19.6;
Pastureland and rangeland: 23.9;
Total land in farms: 44.8.
State: South Dakota;
Year: Change in acres, 1978-1992;
Total cropland: 0.8;
Pastureland and rangeland: -0.2;
Total land in farms: 0.4.
State: South Dakota;
Year: 1997;
Total cropland: 19.7;
Pastureland and rangeland: 23.0;
Total land in farms: 44.1.
State: South Dakota;
Year: 2002;
Total cropland: 20.3;
Pastureland and rangeland: 22.0;
Total land in farms: 43.8.
State: South Dakota;
Year: Change in acres, 1997-2002;
Total cropland: 0.6;
Pastureland and rangeland: -1.0;
Total land in farms: - 0.4.
State: Texas;
Year: 1978;
Total cropland: 39.4;
Pastureland and rangeland: 87.3;
Total land in farms: 135.6.
State: Texas;
Year: 1992;
Total cropland: 36.4;
Pastureland and rangeland: 87.8;
Total land in farms: 130.9.
State: Texas;
Year: Change in acres, 1978-1992;
Total cropland: -3.0;
Pastureland and rangeland: 0.5;
Total land in farms: - 4.7.
State: Texas;
Year: 1997;
Total cropland: 39.1;
Pastureland and rangeland: 86.9;
Total land in farms: 134.0.
State: Texas;
Year: 2002;
Total cropland: 38.7;
Pastureland and rangeland: 83.4;
Total land in farms: 129.9.
State: Texas;
Year: Change in acres, 1997-2002;
Total cropland: -0.4;
Pastureland and rangeland: -3.5;
Total land in farms: -4.1.
State: Wyoming;
Year: 1978;
Total cropland: 2.7;
Pastureland and rangeland: 30.1;
Total land in farms: 33.6.
State: Wyoming;
Year: 1992;
Total cropland: 2.8;
Pastureland and rangeland: 28.9;
Total land in farms: 32.9.
State: Wyoming;
Year: Change in acres, 1978-1992;
Total cropland: 0.1;
Pastureland and rangeland: - 1.2;
Total land in farms: -0.8.
State: Wyoming;
Year: 1997;
Total cropland: 3.0;
Pastureland and rangeland: 30.2;
Total land in farms: 34.3.
State: Wyoming;
Year: 2002;
Total cropland: 3.0;
Pastureland and rangeland: 30.2;
Total land in farms: 34.4.
State: Wyoming;
Year: Change in acres, 1997-2002;
Total cropland: 0.0;
Pastureland and rangeland: 0.1;
Total land in farms: 0.1.
Source: GAO's analysis of NASS's Census of Agriculture data.
[End of table]
[End of section]
Appendix IV: Partial Budget Analysis for a Proposed Conversion of
Native Grassland to Cropland in Central South Dakota, 2003-2007:
To assess the economic incentives to convert native grassland to
cropland at the farm level, we used a partial budget analysis and a
"constructed" farm scenario for a 160-acre tract in Hand County, South
Dakota--a central South Dakota county that was relatively high in 2005
and 2006 conversions of grassland that had no cropping history. A
partial budget can be used by a farmer or rancher to evaluate the
economic effects of making an adjustment to a part of the farm
operation, such as switching to an alternative farm enterprise or
buying new machinery. While not including all farm costs and revenues
of the enterprise, a partial budget[Footnote 35] estimates the net
change in income that results when shifting from a base plan to an
alternative scenario.[Footnote 36]
Livestock grazing enterprises, in particular cow-calf operations, have
historically been typical farm enterprises in South Dakota. In recent
years, however, some of the land that was used for grazing has been
converted to crop production. To analyze the role of farm program
payments in these conversions, we developed a partial budget to compare
the estimated costs and returns for 2003 through 2007 from 160 acres of
native grassland--used for grazing as part of a cow-calf operation--to
the costs and returns that would have resulted if the 160 acres had
been converted to cropland in 2003 and used to produce corn, soybeans,
and wheat through 2007. We assumed that the farm operation initially
consisted of both a cropping enterprise and a cow-calf enterprise.
Therefore, the farmer already had certain fixed capital equipment for
both of these enterprises, such as tractors and harvesting equipment.
In the base plan, the producer had a 160-acre parcel of native
grassland that was part of a larger cow-calf grazing enterprise.
We analyzed cow-calf and crop budgets (1) prospectively for the current
2007 crop year and (2) retrospectively for crop years 2003 through 2006
to specifically evaluate the effects of past farm program payments on
costs and returns. During these years, crop and calf prices varied and
central South Dakota experienced a range of weather conditions that
affected crop and forage production. These changes in price and
production make these years illustrative for analysis of the effect
farm program payments can have on farm enterprises.
We found that for certain years, high crop prices as well as farm
program payments would provide economic incentives for a producer to
convert native grassland used for grazing in a cow-calf operation to an
alternative cropping operation. In 3 of the 5 years, the conversion
from grazing to cropping would have resulted in increased income. In
the other 2 years, 2004 and 2005, when cattle prices and returns were
high relative to crop prices and returns and total farm program
payments were lower, it would have been more profitable not to convert
and continue the cow-calf operation. Without any farm program payments,
income would have increased only in 2007, but in view of projections
that crop prices will remain relatively high, this increase in income
without farm program payments may continue for several years. However,
even with high crop prices, farm program payments for crop insurance
and crop disaster assistance will continue to be an important factor in
conversion decisions because of the need for protection against adverse
crop production risks, such as drought.
Base Plan Scenario--Cow-Calf Grazing:
For the base plan or cow-calf section of the analysis, we used
production and price data from South Dakota State University's cow-calf
budget tool[Footnote 37] as well as expert opinion from South Dakota
State University livestock extension economists and USDA Natural
Resources Conservation Service officials in South Dakota. We assumed
that Hand County, South Dakota, in a normal year of precipitation,
would support one cow-calf pair for every 8 acres of native grassland.
Since South Dakota experienced varied weather conditions--including
drought--during 2003 through 2007, we adjusted our cow-calf model to
incorporate changes in the number of pounds of calves and cows sold to
account for changes in the amount of forage available for grazing on
the 160 acres. These adjustments were based on NRCS rangeland forage
production values for favorable, normal, and unfavorable
years.[Footnote 38] On the basis of South Dakota NRCS officials' expert
opinion, we assumed that a 20 percent deviation in annual rainfall
above or below the 30-year average during 1976 through 2006 would be
either favorable or unfavorable, respectively. Using this definition,
2003 forage production values were normal, 2004 were favorable, 2005
were normal, and 2006 were unfavorable. We assumed 2007 forage
production values were normal based on South Dakota NRCS officials'
observations as of July 2007.
In estimating cow-calf returns, we used calf prices from South Dakota
State University's stocker cattle prices (500 to 600 pounds), monthly
average prices, for November. For cull cow prices, we used the Sioux
Falls price of slaughter cows for November 2003 through 2006; for 2007,
we used an average of the first 5 months of the year. For additional
income due to herd liquidation, we obtained yearly average "Bred
Female" prices, Central Region, for "young and middle-aged cows" from
Drovers for 2003 through 2006 and the first 5 months of 2007.[Footnote
39] For corn feed costs, we calculated an average price for each year,
2003 through 2006, based on weekly Central South Dakota cash corn
prices from South Dakota State University's extension service; for
2007, we calculated an average of these weekly prices from January to
July. For hay alfalfa prices, we used USDA National Agricultural
Statistics Service yearly average prices for 2003 through 2006, and for
2007, an average monthly price based on the first 5 months of this
year. Regarding "other" costs, we reduced all direct costs in the cow-
calf spreadsheet before 2005 by 10 percent, with the exception of
"Veterinary and Drug," which we reduced by 15 percent, and kept all the
later years the same as in the budget tool spreadsheet.[Footnote 40]
Alternative Scenario--Corn/Soybean/Spring Wheat Cropping Rotation:
For the alternative scenario--the crop portion of the partial budget
analysis, we assumed a corn/soybean/spring wheat crop rotation on the
160-acre parcel for a farm in Hand County, South Dakota. We assumed
this particular crop rotation based on those crops having the highest
acreages according to NASS statistics and consultations with South
Dakota State University crop extension experts. We first looked
retrospectively at the time period from 2003 through 2006 to see the
effects of prices, yields, and farm payments on costs and returns. We
then used preliminary data for crop prices and average historical yield
data to examine potential returns for crop year 2007.[Footnote 41]
For 2003 through 2007, we adjusted all yield data to reflect the fact
that this newly converted land may represent "marginal" or less
productive land than the land that was already in crop production. To
do this, we consulted with NRCS officials in central South Dakota to
obtain information on the soil types that were most often being
converted.[Footnote 42] On the basis of this information, we then
adjusted the county average crop yields for corn, soybeans, and spring
wheat to estimate a likely yield for a newly converted parcel of native
grassland for a particular year. On average, these estimated yields
were about 17 percent lower than the county average yields. We used
these adjusted yields in our calculation of gross income from corn,
soybeans, and spring wheat in our partial budget analysis. In addition,
because documentation on the soil types most often being converted was
not available and to determine how sensitive our results were to these
adjusted crop yields, we also estimated gross returns from crop
production in our partial budget analysis using unadjusted NASS county
average crop yields for 2003 through 2006. For 2007, we estimated an
unadjusted 3-year moving county average for corn and soybeans, and for
spring wheat, we used the South Dakota NASS yield projection as of July
2007.
We obtained the remaining data on prices and costs for the crop
analysis from extension specialists and agricultural economists in
central South Dakota and at South Dakota State University.[Footnote 43]
For instance, we obtained most of the cost data for the crop budgets
from an area farm management specialist in the Department of Economics
at South Dakota State University. For price data, we used yearly
average central South Dakota cash prices for corn, soybeans, and spring
wheat for 2003 through 2006 from South Dakota State University's
extension grain marketing specialist. For 2007 price data, we used the
most recent statewide average cash price, as of July 13, for South
Dakota for corn, soybeans, and spring wheat. For 2003 through 2006 loan
deficiency payments, we used Hand County average yearly loan deficiency
payments for this period from the USDA Farm Service Agency's South
Dakota state office.[Footnote 44] For crop insurance payments to
farmers, we used crop insurance indemnity payments per acre in Hand
County, South Dakota as estimated by a USDA Risk Management Agency
official. For crop disaster assistance payments, we used data from FSA
on crop disaster assistance payments by county to estimate an average
crop disaster assistance payment per acre for Hand County for 2003, the
only year when these payments were significant.[Footnote 45] Because
crop insurance indemnity and crop disaster assistance payments
generally are related to the same crop losses, we used RMA crop
insurance indemnity payments data in making this estimate.
Specifically, we applied the proportion of the amount of crop insurance
indemnities that were paid to each crop (i.e., corn, soybeans, and
spring wheat) to the total crop disaster assistance payments in the
county for 2003 to estimate the crop disaster assistance payment for
each crop.
In addition to income from crop production, the producer's additional
returns in the first year of conversion would be from the sale or
liquidation of the herd that had grazed on the 160-acre parcel.
Specifically, we assumed the conversion takes place in 2003, and the
herd liquidation in a normal year would consist of about 20 bred
females that previously grazed on the land, of which 10 would be sold
in the bred female market and 10 in the cull cow market since the cow
herd would be composed of various ages. In order not to
disproportionately influence any one year's returns from the herd
liquidation, the proceeds were amortized over a 5-year period, from
2003 to 2007, at an interest rate of 6 percent, resulting in annual
revenue of about $3,125. Similarly, as part of the conversion, we also
assumed conversion costs for the 160-acre parcel of land, consisting of
about $3,200 for herbicide treatment, would be amortized over this
period, resulting in an annual cost of about $760. According to NRCS
officials, rock removal can also add to conversion costs, but these
costs are highly variable because the amount of rocks on native grass
and the methods used in removing them varies. Thus, we did not include
rock removal in our partial budget analysis.
As noted, we assumed the conversion to cropland occurred in 2003. The
use of another year for the conversion would have some effect on the
results. For example, if the conversion had occurred in 2004, a year of
relatively high cattle prices and better forage available for grazing,
the revenue from the cow liquidation would have been greater. In that
year, the amortized annual value from the sale of the cow herd would
have been $4,284, about $1,158 greater than in 2003. Thus, the annual
net change in income resulting from the conversion to cropland would
have been about $1,158 higher.
Partial Budget Analysis:
After creating the base plan and alternative scenario and collecting
the appropriate data for the 5 years, we then used these data in the
partial budget to analyze the role of farm program payments in
conversion decisions and determine which option, the cow-calf
enterprise or the cropping enterprise, would provide higher returns
over costs. Specifically, as table 10 shows, the alternative scenario-
-conversion to cropland--would result in additional returns from crop
production, farm program payments, and the sale of the cow herd
(Section 1), reduced costs from no longer having the present cow-calf
enterprise (Section 2), additional costs from crop production
(including conversion costs) (Section 3), and reduced returns from the
cow-calf enterprise (Section 4). Therefore, in the partial budget
analysis, the net change in income for the producer would be the total
benefits of the proposed change (Sections 1 and 2) minus the total
costs (Sections 3 and 4).
The partial budget results for crop years 2003 through 2006 are shown
in table 10. For each year, we estimated the net change in income using
crop yields adjusted for soil productivity. As noted earlier, we also
estimated these income changes using unadjusted NASS county average
crop yields. In 2003, the sum of gross revenue from the sale of crops
produced, farm program payments (crop insurance, crop disaster
assistance, and loan deficiency payments), and the amortized proceeds
from the liquidation of the cow herd would have resulted in a positive
change in net income of $3,761 in favor of the alternative scenario,
crop production using the adjusted crop yields. Although 2003 cash corn
prices were at relatively average historical levels, $2.36 per bushel,
and soybean prices were high, averaging about $7.70 per bushel, yields
were at very low levels resulting in relatively low crop revenue.
However, farm program payments would have offset this low crop revenue,
contributing approximately $12,300 on the 160-acre tract. Without these
farm program payments, net income from the base plan, the cow-calf
enterprise, would have been about $8,500 greater than crop production
in this year. Using the unadjusted county average, crop yields would
have produced a net change in income of about $6,824 in favor of the
cropping alternative.
For 2004, we estimate net income of about $3,602 in favor of remaining
with the base plan, the cow-calf enterprise. Although crop yields were
relatively high in 2004, corn and soybean prices were much lower than
the previous year, at $1.64 and $5.49, respectively. Also, the total of
crop insurance, crop disaster assistance, and loan deficiency payments
for this year were almost $9,000 lower than in 2003. Although loan
deficiency payments were higher due to the lower crop prices, crop
insurance benefits were lower due to the higher crop yields, and crop
disaster assistance payments would not have been made because, as
provided in the legislation, the producer could only receive a crop
disaster assistance payment for 2003 or 2004 and could not receive a
payment for both years. Moreover, 2004 cow-calf returns were relatively
high, as calf prices had increased over 2003, going from an average of
$111 to $122 per hundredweight. In addition, we estimate higher returns
to the cow-calf enterprise in this year due to more favorable weather
for forage production and lower prices for feedstuffs. Furthermore,
direct costs of production for the cow-calf enterprise (about $6,500)
were about one-third that of the costs of production for the cropping
enterprise (about $19,500). However, using unadjusted county average
yields to estimate gross revenue causes the alternative scenario,
conversion to cropland, to be higher in net income, but only by about
$1,375.
Similarly, for 2005, we estimate that net income from the alternative
scenario, crop production, with yields adjusted for soil productivity
would have been about $4,835 less than the base plan, the cow-calf
enterprise. The net change in income using the unadjusted county
average crop yields would have been higher for the alternative scenario
by about $90. In 2005, crop yields were similar to those in 2004, but
crop prices were again quite low. At the same time, calf prices were at
historically high levels--$137 per hundredweight. Feedstuff costs, due
to the low corn prices, were relatively low, and the costs of
production for cropping were over three times greater than costs for
the cow-calf enterprise. Also, in 2005, while some loan deficiency
payments ($2,175 for the 160-acre parcel) were received, crop insurance
payments, about $625 for the parcel, were much lower than the previous
year, and no crop disaster assistance payments had been received as of
July 2007.
For 2006, we estimate an increase net income of about $2,366 in favor
of the alternative scenario, crop production. Although crop yields were
very low due to drought, crop prices increased. Average cash corn
prices for Central South Dakota jumped from $1.76 per bushel in 2005 to
$3.37 per bushel in 2006. More importantly, however, due to the low
yields that year, the producer would have received about $8,995 on the
160-acre parcel from crop insurance payments.[Footnote 46] At the same
time, cow-calf returns decreased because of decreases in calf and cow
prices and unfavorable conditions for forage production because of the
drought. This reduced forage production would result in lower calf
weights and higher feed costs for the cow-calf enterprise. Using the
unadjusted NASS county average crop yields would have increased the net
income change to about $6,069.
Table 10: Partial Budget Analysis for a Proposed 2003 Change from a Cow-
Calf Enterprise to a Corn/Soybean/Wheat Cropping Enterprise in Central
South Dakota, 2003-2006:
Partial budget, 2003: Section 1:
Additional returns from proposed change: Corn;
Amount of change, Adjusted crop yields: $4,666.73;
Amount of change, County average crop yields: $5,610.14.
Additional returns from proposed change: Soybeans;
Amount of change, Adjusted crop yields: 4,063.06;
Amount of change, County average crop yields: 4,883.88.
Additional returns from proposed change: Spring wheat;
Amount of change, Adjusted crop yields: 6,120.97;
Amount of change, County average crop yields: 7,349.00.
Additional returns from proposed change: Loan deficiency payment;
Amount of change, Adjusted crop yields: 351.14;
Amount of change, County average crop yields: 421.71.
Additional returns from proposed change: Crop insurance payment;
Amount of change, Adjusted crop yields: 7,895.33;
Amount of change, County average crop yields: 7,895.33.
Additional returns from proposed change: Disaster assistance payment;
Amount of change, Adjusted crop yields: 4,014.02;
Amount of change, County average crop yields: 4,014.02;
Additional returns from proposed change: Liquidation of cow herd
(amortized);
Amount of change, Adjusted crop yields: 3,125.23;
Amount of change, County average crop yields: 3,125.23;
Subtotal additional returns:
Amount of change, Adjusted crop yields: $30,236.49;
Amount of change, County average crop yields: $33,299.32.
Partial budget, 2003: Section 2:
Reduced costs from proposed change: Reduced costs from cow-calf
operation;
Amount of change, Adjusted crop yields: $5,473.62;
Amount of change, County average crop yields: $5,473.62.
Subtotal reduced costs:
Amount of change, Adjusted crop yields: $5,473.62;
Amount of change, County average crop yields: $5,473.62.
Partial budget, 2003: Section 3:
Additional costs of proposed change: Corn;
Amount of change: Adjusted crop yields: $7,330.88;
Amount of change: County average crop yields: $7,330.88.
Additional costs of proposed change: Soybeans;
Amount of change: Adjusted crop yields: 4,770.35;
Amount of change: County average crop yields: 4,770.35.
Additional costs of proposed change: Spring wheat;
Amount of change: Adjusted crop yields: 5,039.52;
Amount of change: County average crop yields: 5,039.52.
Additional costs of proposed change: Herbicide treatment for conversion
(amortized);
Amount of change: Adjusted crop yields: 759.67;
Amount of change: County average crop yields: 759.67.
Subtotal additional costs:
Amount of change: Adjusted crop yields: $17,900.42;
Amount of change: County average crop yields: $17,900.42.
Partial budget, 2003: Section 4:
Reduced returns from proposed change: Sale of calves and cull cows in a
year with normal forage production;
Amount of change: Adjusted crop yields: $14,048.49;
Amount of change: County average crop yields: $14,048.49.
Subtotal reduced returns:
Amount of change: Adjusted crop yields: $14,048.49;
Amount of change: County average crop yields: $14,048.49.
Net change in income, 2003:
Amount of change: Adjusted crop yields: $3,761.20;
Amount of change: County average crop yields: $6,824.03.
Partial budget, 2004, Section 1:
Additional returns from proposed change: Corn;
Amount of change, Adjusted crop yields: $7,377.57;
Amount of change, County average crop yields: $8,863.58.
Additional returns from proposed change: Soybeans;
Amount of change, Adjusted crop yields: 7,373,95;
Amount of change, County average crop yields: 8,866,30.
Additional returns from proposed change: Spring wheat;
Amount of change, Adjusted crop yields: 8,029.96;
Amount of change, County average crop yields: 9,662.22.
Additional returns from proposed change: Loan deficiency payment;
Amount of change, Adjusted crop yields: 1,817.32;
Amount of change, County average crop yields: 2,184.39.
Additional returns from proposed change: Crop insurance payment;
Amount of change, Adjusted crop yields: 1,211,51;
Amount of change, County average crop yields: 1,211,51.
Additional returns from proposed change: Disaster assistance payment;
Amount of change, Adjusted crop yields:
Amount of change, County average crop yields:
Additional returns from proposed change: Liquidation of cow herd
(amortized);
Amount of change, Adjusted crop yields: 3,125.23;
Amount of change, County average crop yields: 3,125.23;
Subtotal additional returns:
Amount of change, Adjusted crop yields: $28,935.54;
Amount of change, County average crop yields: $33,913.23.
Partial budget, 2004: Section 2:
Reduced costs from proposed change: Reduced costs from cow-calf
operation;
Amount of change, Adjusted crop yields: $6,570.14;
Amount of change, County average crop yields: $6,570.14.
Subtotal reduced costs:
Amount of change, Adjusted crop yields: $6,570.14;
Amount of change, County average crop yields: $6,570.14.
Partial budget, 2004: Section 3:
Additional costs of proposed change: Corn;
Amount of change: Adjusted crop yields: $8,568.51;
Amount of change: County average crop yields: $8,568.51.
Additional costs of proposed change: Soybeans;
Amount of change: Adjusted crop yields: 4,796.47;
Amount of change: County average crop yields: 4,796.47.
Additional costs of proposed change: Spring wheat;
Amount of change: Adjusted crop yields: 6,163.61;
Amount of change: County average crop yields: 6,163.61.
Additional costs of proposed change: Herbicide treatment for conversion
(amortized);
Amount of change: Adjusted crop yields: 759.67;
Amount of change: County average crop yields: 759.67.
Subtotal additional costs:
Amount of change: Adjusted crop yields: $20,288.26;
Amount of change: County average crop yields: $20,288.26.
Partial budget, 2004: Section 4:
Reduced returns from proposed change: Sale of calves and cull cows in a
year with normal forage production;
Amount of change: Adjusted crop yields: $18,820.18;
Amount of change: County average crop yields: $18,820.18.
Subtotal reduced returns:
Amount of change: Adjusted crop yields: $18,820.18;
Amount of change: County average crop yields: $18,820.18.
Net change in income, 2004:
Amount of change: Adjusted crop yields: ($3,602.75);
Amount of change: County average crop yields: $1,374.94.
Partial budget, 2005, Section 1:
Additional returns from proposed change: Corn;
Amount of change, Adjusted crop yields: $7,617.21;
Amount of change, County average crop yields: $9,155.66.
Additional returns from proposed change: Soybeans;
Amount of change, Adjusted crop yields: 7,416.70;
Amount of change, County average crop yields: 8,927.00.
Additional returns from proposed change: Spring wheat;
Amount of change, Adjusted crop yields: 7,079.57;
Amount of change, County average crop yields: 8,516,01.
Additional returns from proposed change: Loan deficiency payment;
Amount of change, Adjusted crop yields: 2,174.75;
Amount of change, County average crop yields: 2,164.15.
Additional returns from proposed change: Crop insurance payment;
Amount of change, Adjusted crop yields: 625.21;
Amount of change, County average crop yields: 625.21.
Additional returns from proposed change: Disaster assistance payment;
Amount of change, Adjusted crop yields:
Amount of change, County average crop yields:
Additional returns from proposed change: Liquidation of cow herd
(amortized);
Amount of change, Adjusted crop yields: 3,125.23;
Amount of change, County average crop yields: 3,125.23;
Subtotal additional returns:
Amount of change, Adjusted crop yields: $28,038.66;
Amount of change, County average crop yields: $32,963.26.
Partial budget, 2005: Section 2:
Reduced costs from proposed change: Reduced costs from cow-calf
operation;
Amount of change, Adjusted crop yields: $5,737,80;
Amount of change, County average crop yields: $5,737,80.
Subtotal reduced costs:
Amount of change, Adjusted crop yields: $5,737,80;
Amount of change, County average crop yields: $5,737,80.
Partial budget, 2005: Section 3:
Additional costs of proposed change: Corn;
Amount of change: Adjusted crop yields: $9,187.85;
Amount of change: County average crop yields: $9,187.85.
Additional costs of proposed change: Soybeans;
Amount of change: Adjusted crop yields: 5,344.39;
Amount of change: County average crop yields: 5,344.39.
Additional costs of proposed change: Spring wheat;
Amount of change: Adjusted crop yields: 6,459.43;
Amount of change: County average crop yields: 6,459.43.
Additional costs of proposed change: Herbicide treatment for conversion
(amortized);
Amount of change: Adjusted crop yields: 759.67;
Amount of change: County average crop yields: 759.67.
Subtotal additional costs:
Amount of change: Adjusted crop yields: $21,751.34;
Amount of change: County average crop yields: $21,751.34.
Partial budget, 2005: Section 4:
Reduced returns from proposed change: Sale of calves and cull cows in a
year with normal forage production;
Amount of change: Adjusted crop yields: $16,859.78;
Amount of change: County average crop yields: $16,859.78.
Subtotal reduced returns:
Amount of change: Adjusted crop yields: $16,859.78;
Amount of change: County average crop yields: $16,859.78.
Net change in income, 2005:
Amount of change: Adjusted crop yields: ($4,834.66);
Amount of change: County average crop yields: $89.94.
Partial budget, 2006, Section 1:
Additional returns from proposed change: Corn;
Amount of change, Adjusted crop yields: $7,454.27;
Amount of change, County average crop yields: $8,963.09.
Additional returns from proposed change: Soybeans;
Amount of change, Adjusted crop yields: 5,632,64;
Amount of change, County average crop yields: 6,752.58.
Additional returns from proposed change: Spring wheat;
Amount of change, Adjusted crop yields: 5,197.82;
Amount of change, County average crop yields: 6,252.09.
Additional returns from proposed change: Loan deficiency payment;
Amount of change, Adjusted crop yields: 100.26;
Amount of change, County average crop yields: 120.19.
Additional returns from proposed change: Crop insurance payment;
Amount of change, Adjusted crop yields: 8,995.44;
Amount of change, County average crop yields: 8,995.44.
Additional returns from proposed change: Disaster assistance payment;
Amount of change, Adjusted crop yields:
Amount of change, County average crop yields:
Additional returns from proposed change: Liquidation of cow herd
(amortized);
Amount of change, Adjusted crop yields: 3,125.23;
Amount of change, County average crop yields: 3,125.23;
Subtotal additional returns:
Amount of change, Adjusted crop yields: $30,505.65;
Amount of change, County average crop yields: $34,208.62.
Partial budget, 2006: Section 2:
Reduced costs from proposed change: Reduced costs from cow-calf
operation;
Amount of change, Adjusted crop yields: $4,609.36;
Amount of change, County average crop yields: $4,609.36.
Subtotal reduced costs:
Amount of change, Adjusted crop yields: $4,609.36;
Amount of change, County average crop yields: $4,609.36.
Partial budget, 2006: Section 3:
Additional costs of proposed change: Corn;
Amount of change: Adjusted crop yields: $9,707.00;
Amount of change: County average crop yields: $9,707.00.
Additional costs of proposed change: Soybeans;
Amount of change: Adjusted crop yields: 5,617.82;
Amount of change: County average crop yields: 5,617.82.
Additional costs of proposed change: Spring wheat;
Amount of change: Adjusted crop yields: 7,043.06;
Amount of change: County average crop yields: 7,043.06.
Additional costs of proposed change: Herbicide treatment for conversion
(amortized);
Amount of change: Adjusted crop yields: 759.67;
Amount of change: County average crop yields: 759.67.
Subtotal additional costs:
Amount of change: Adjusted crop yields: $23,127.55;
Amount of change: County average crop yields: $23,127.55.
Partial budget, 2006: Section 4:
Reduced returns from proposed change: Sale of calves and cull cows in a
year with normal forage production;
Amount of change: Adjusted crop yields: $9,621.12;
Amount of change: County average crop yields: $9,621.12.
Subtotal reduced returns:
Amount of change: Adjusted crop yields: $9,621.12;
Amount of change: County average crop yields: $9,621.12.
Net change in income, 2006:
Amount of change: Adjusted crop yields: $2,366.35;
Amount of change: County average crop yields: $6,069.31.
Source: GAO's analysis based on data provided by and consultations with
South Dakota State University, FSA, NASS, NRCS, and RMA. Partial budget
template used by permission of the Agricultural Economics Department,
University of Missouri.
Notes: (1) We calculated returns and costs assuming conversion of
native grassland to cropland on a "constructed" farm in Hand County,
South Dakota that produced a rotation of corn, soybeans, and spring
wheat. (2) For the crop enterprise, we used regional average crop
prices; NASS county average crop yields, both adjusted and unadjusted
for soil productivity; central South Dakota region crop production cost
data; and county average crop insurance, and crop disaster assistance,
and loan deficiency payments. We used assumptions and data provided by
agricultural economists, agronomists, and soil scientists from South
Dakota State University and NASS to estimate yields and conversion
costs. Farm program payments data were provided by FSA and RMA
officials. (3) Data and assumptions for the cow-calf enterprise are
from South Dakota State University extension service in the central and
eastern regions and NRCS officials in South Dakota. We did not include
in our analysis the benefits from any livestock disaster assistance
payments, although we realize there were such payments in 2004. For
feed prices, we used average weekly cash corn prices for the Central
region of South Dakota, from the South Dakota State University
extension service and yearly NASS prices for alfalfa hay. (4) The
dashes indicate that we did not include a crop disaster assistance
payment for 2004, 2005, or 2006.
[End of table]
We also estimated the income effects of converting native grassland to
crop production prospectively for the current 2007 crop year. As table
11 shows for 2007, we estimate that the net change in income for the
alternative scenario, crop production, would be about $2,099. Also, in
this high price year for crops, the value of production from the
cropping enterprise would be about $15,000 more than from the cow-calf
enterprise. An important factor for the cow-calf enterprise during this
year would be the adjustment to much higher feed prices, which along
with lower calf prices, would lead to lower cow-calf returns in 2007.
On the crop side, because 2007 crop prices are forecast to stay above
the marketing loan rates, we assumed no loan deficiency payments would
be received for this year. In addition, we did not include any crop
insurance or disaster assistance payments for 2007, although such
payments may be made in the future. Despite the absence of farm program
payments, the partial budget demonstrates that in this high crop price
year crop production would have been more profitable than using the
land for grazing cattle. Using the unadjusted 2007 projected county
average yields would increase the net income resulting from the
conversion to cropland to about $8,290.
Table 11: Partial Budget Analysis for a Proposed 2003 Change from a Cow-
Calf Enterprise to a Corn/Soybean/Wheat Cropping Enterprise in Central
South Dakota, 2007:
Partial budget, 2007, Section 1:
Additional returns from proposed change: Corn;
Amount of change, Adjusted crop yields: $12,951.13;
Amount of change, County average crop yields: $15,566.50.
Additional returns from proposed change: Soybeans;
Amount of change, Adjusted crop yields: 8,335.76;
Amount of change, County average crop yields: 10,018.18.
Additional returns from proposed change: Spring wheat;
Amount of change, Adjusted crop yields: 9,382.80;
Amount of change, County average crop yields: 11,276.15.
Additional returns from proposed change: Loan deficiency payment;
Amount of change, Adjusted crop yields:
Amount of change, County average crop yields:
Additional returns from proposed change: Crop insurance payment;
Amount of change, Adjusted crop yields:
Amount of change, County average crop yields:
Additional returns from proposed change: Disaster assistance payment;
Amount of change, Adjusted crop yields:
Amount of change, County average crop yields:
Additional returns from proposed change: Liquidation of cow herd
(amortized);
Amount of change, Adjusted crop yields: 3,125.23;
Amount of change, County average crop yields: 3,125.23;
Subtotal additional returns:
Amount of change, Adjusted crop yields: $33,794.92;
Amount of change, County average crop yields: $39,986.06.
Partial budget, 2007: Section 2:
Reduced costs from proposed change: Reduced costs from cow-calf
operation;
Amount of change, Adjusted crop yields: $7,187.80;
Amount of change, County average crop yields: $7,187.80.
Subtotal reduced costs:
Amount of change, Adjusted crop yields: $7,187.80;
Amount of change, County average crop yields: $7,187.80.
Partial budget, 2007: Section 3:
Additional costs of proposed change: Corn;
Amount of change: Adjusted crop yields: $9,726.18;
Amount of change: County average crop yields: $9,726.18.
Additional costs of proposed change: Soybeans;
Amount of change: Adjusted crop yields: 5,573.05;
Amount of change: County average crop yields: 5,573.05.
Additional costs of proposed change: Spring wheat;
Amount of change: Adjusted crop yields: 7,324.49;
Amount of change: County average crop yields: 7,324.49.
Additional costs of proposed change: Herbicide treatment for conversion
(amortized);
Amount of change: Adjusted crop yields: 759.67;
Amount of change: County average crop yields: 759.67.
Subtotal additional costs:
Amount of change: Adjusted crop yields: $23,383.39;
Amount of change: County average crop yields: $23,383.39.
Partial budget, 2007: Section 4:
Reduced returns from proposed change: Sale of calves and cull cows in a
year with normal forage production;
Amount of change: Adjusted crop yields: $15,499.86;
Amount of change: County average crop yields: $15,499.86.
Subtotal reduced returns:
Amount of change: Adjusted crop yields: $15,499.86;
Amount of change: County average crop yields: $15,499.86.
Net change in income, 2006:
Amount of change: Adjusted crop yields: $2,099.47;
Amount of change: County average crop yields: $8,290.61.
Source: GAO's analysis based on data provided by and consultations with
South Dakota State University extension service, NASS, and NRCS.
Partial budget template used by permission of the Agricultural
Economics Department, University of Missouri.
Notes: (1) We calculated returns and costs assuming conversion of
native grassland to cropland on a "constructed" farm in Hand County,
South Dakota, that produced a rotation of corn, soybeans, and spring
wheat. (2) For the crop enterprise, we used regional average crop
prices for January to July 2007; a 3-year moving average of NASS county
average crop yields, adjusted and unadjusted for soil productivity for
corn and soybeans and a projected 2007 South Dakota yield for spring
wheat, adjusted and unadjusted for soil productivity; and central South
Dakota regional crop production cost data. We used assumptions and data
provided by NRCS officials to estimate conversion costs. (3) Data and
assumptions for the cow-calf enterprise are from South Dakota State
University extension service in the central and eastern regions and
NRCS officials in South Dakota. For 2007, we used 2007 average weekly
cash corn prices for the central region of South Dakota from January to
July from the South Dakota State University extension service and
January to June average monthly NASS prices for alfalfa hay. (4) The
dashes indicate that no loan deficiency payments would be received for
2007 and that we did not include any crop insurance or disaster
assistance payments for this year, although such payments may be made
in the future.
[End of table]
In summary, if South Dakota corn, soybean, and wheat prices stay at
relatively high levels, as forecast by USDA national price projections,
incentives for conversion should continue in the near future.[Footnote
47] In addition, as the retrospective analysis suggests, farm program
payments, especially crop insurance and crop disaster assistance
payments, lower the risk of negative returns in years with low crop
yields.
[End of section]
Appendix V: Summaries of Economic Studies Examining the Impact of Farm
Program Payments:
We identified and reviewed 15 studies that analyze the potential
economic impacts of federal farm program payments on either producers'
land use decisions or farm profitability and risk. The impact of farm
program payments on farm profitability and risk is closely related to
land use decisions. Table 12 summarizes the 15 studies, including the
purpose and results associated with each.
Table 12: Economic Studies That Analyze the Impact of Federal Farm
Program Payments on Either Producers' Land Use Decisions or Farm
Profitability and Risk:
Economic study: Janssen, Larry, Burton Pflueger, and Terry Ahrendt.
South Dakota Agricultural Land Market Trends, 1991-2007. South Dakota
State University Agricultural Experiment Station, USDA; Purpose of the
study: To report on current agricultural land values and cash rental
rates by land use in different regions in South Dakota;
Year: 2007;
Related findings and conclusions: Land values in South Dakota have
doubled since 2002 and tripled since 1996. During this time, farm
commodity payments increased from $230 million to more than $700
million a year. In addition to commodity payments, interest rates,
technology, and ethanol demand have also been factors in increasing
land values. However, farmland values have become more dependent on
farm program payments.
Economic study: Shaik, Saleem, Joseph Atwood, and Glenn Helmbers. "Farm
Programs and Agricultural Land Values: The Case of Southern
Agriculture." Paper presented to the Southern Agricultural Economics
Association Annual Meetings, Orlando, Florida, February 2006; Purpose
of the study: To examine the contribution of expected farm returns and
farm program payments in 12 southern states;
Year: 2006;
Related findings and conclusions: The proportion of land values
attributable to farm program payments has increased from about 14
percent in the early 1980's to 67 percent in the southern United States
from 2002 to 2004.
Economic study: U.S. Department of Agriculture. Economic Research
Service. Environmental Effects of Agricultural Land-Use Change: The
Role of Economics and Policy. Economic Research Report Number 25,
Washington, D.C., August 2006; Purpose of the study: To examine the
relationship between agricultural land use changes, soil productivity,
and environmental sensitivity and the effects of increased crop
insurance subsidies on land use;
Year: 2006;
Related findings and conclusions: Land moving between cultivated
cropland and less intensive agricultural uses is less productive and
more vulnerable to erosion and nutrient runoff than other cultivated
land. Producers tend to keep highly productive land in cultivation
regardless of changing economic conditions. But economic conditions,
such as changing commodity prices or production costs, encourage
farmers to expand production to less productive land or to shift less
productive croplands to other uses. Agricultural and conservation
policies also affect land use. These land use changes affect
environmental quality, particularly when affected lower-quality lands
are environmentally sensitive. Crop insurance raises incentives to
expand crops to less productive land. Increased crop insurance
subsidies in the mid-1990s motivated producers to expand cropland in
the contiguous 48 states by an estimated 2.5 million acres, with most
of the land coming from pastureland and other grassland. Due to this
land-use change, annual wind and water erosion estimates increased by
1.4 and 0.9 percent, respectively, as of 1997.
Economic study: U.S. Department of Agriculture. Economic Research
Service. Agricultural Resources and Environmental Indicators, 2006
Edition. Economic Information Bulletin 16, Washington, D.C., July 2006;
Purpose of the study: To describe patterns and trends in land, water,
and biological resources; report on the condition of natural and other
resources used in the agricultural sector; and describe public policies
and programs as well as economic factors that affect resource use,
conservation, and environmental quality in agriculture;
Year: 2006;
Related findings and conclusions: Previous research has shown that
capitalization of expected farm program payments increases cropland
values. The effect of farm program payments on cropland values varies
widely throughout the United States, but increases are highest in the
Northern Plains.
Economic study: Janssen, Larry, and Yonas Hamda. Federal Farm Program
Payments (1990 - 2001): An Analysis of Changing Dependency and the
Distribution of Farm Payments in South Dakota. Selected paper 136474
presented to the American Agricultural Economics Association Annual
Meetings, Providence, Rhode Island, July 2005; Purpose of the study: To
examine the economic impact of federal farm program payments in South
Dakota at the state and local levels from 1996 to 2001;
Year: 2005;
Related findings and conclusions: Statewide, federal farm program
payments averaged 36 percent of net farm income from 1990 to 1995 and
almost 54 percent from 1996 to 2001. The lowest dependency rate of net
farm income on payments was in the most cropland-intensive East
Central/Southeast region, while the highest dependency rate was in the
Western region, which was the only region with payments exceeding net
farm income in most years examined. The dependency rate of farm income
on payments increased considerably in all regions from the 1990-1995
time period to the 1996-2001 period.
Economic study: Babcock, Bruce, and Chad Hart. "Risk-Free Farming?"
Iowa Ag Review, vol. 10. no. 1 (Winter 2004), 1-3,11; Purpose of the
study: To examine how farm programs and crop insurance affect revenue;
Year: 2004;
Related findings and conclusions: The reduction in risk that crop
farmers obtain from crop insurance and commodity programs has largely
resulted in risk-free crop production. In addition, the article states
that farm programs create incentives for farmers and landlords to focus
on growing the commodities that are supported by these programs.
Economic study: Goodwin, Barry, Ashok Mishra, and Francois Ortolo-
Magne. "Landowners' Riches: The Distribution of Agricultural
Subsidies." (Madison, Wisconsin: University of Wisconsin, February
2004). [hyperlink,
http://www.busc.wisc.edu/Realestate/pdf/Landownersriches.pdf]
(downloaded June 21, 2007); Purpose of the study: To examine the
distribution of farm program payments and how landowners may benefit
from these payments;
Year: 2004;
Related findings and conclusions: Farm program subsidies have a
significant impact on farm land values. Among the types of payments
studied, loan deficiency payments appear to have the largest effect.
Long-term payments not directly related to production had relatively
little impact.
Economic study: Gray, Allan, Michael Boehlje, Brent Gloy, and Stephen
Slinksy. "How U.S. Farm Programs and Crop Revenue Insurance Affect
Returns to Farm Land," Review of Agricultural Economics, vol. 26, no. 2
(2004), pp. 238-253; Purpose of the study: To examine the economic
impact of federal farm program and crop insurance payments on a typical
Northwest Indiana corn/soybean farm;
Year: 2004;
Related findings and conclusions: Federal farm program payments
influence land use decisions because they increase the expected returns
to farming while lowering the associated risk. Also, crop revenue
insurance enhanced the impact of other farm programs by substantially
increasing the attractiveness of farming for the most risk-averse
producers.
Economic study: Smith, Katherine. "The Growing Prevalence of Emergency,
Disaster, and Other Ad Hoc Farm Program Payments: Implications for Agri-
Environmental and Conservation Programs," Agricultural and Resource
Economics Review, vol. 30, no.1 (2004): 1-7; Purpose of the study: To
examine various federal disaster assistance programs to determine
potential reasons for the rise in ad hoc disaster payments and their
impact on agri-environmental and conservation programs;
Year: 2004;
Related findings and conclusions: The use of emergency, disaster, and
other ad hoc sources of income support to American farmers escalated
dramatically between 1991 and 2002, increasing year- to-year
uncertainty about the magnitude and distribution of farm program
benefits. Ad hoc payments have the potential to substitute for or
conflict with agri-environmental and conservation program goals. Crop
disaster payments mitigate risk for risk-averse producers, thus
increasing risky production, which, in turn, could lead to more natural
and market-based losses. This could increase the need for additional
crop insurance and disaster payments.
Economic study: Goodwin, Barry, and Vincent Smith, "An Ex Post
Evaluation of the Conservation Reserve, Federal Crop Insurance, and
Other Government Programs: Program Participation and Soil Erosion,"
Journal of Agricultural and Resource Economics, vol. 28, no. 2 (2003):
201-216; Purpose of the study: To examine the impact of federal farm
programs on soil erosion;
Year: 2003;
Related findings and conclusions: The Conservation Reserve Program
significantly reduced soil erosion in areas where producers have
participated. While federal crop insurance and disaster relief programs
appear to have had little impact on soil erosion, income supports that
have encouraged production have had substantial effects. In particular,
about half of the reduction in soil erosion attributable to CRP
enrollment was offset by increased erosion induced by increases in
income-supporting federal programs.
Economic study: Federal Reserve Bank of St. Louis. Political Allocation
of U.S. Agriculture Disaster Payments in the 1990s. Working paper 2003-
005C (St. Louis, Missouri, 2003); Purpose of the study: To examine the
impact of political influence on the allocation of crop disaster
payments, in addition to the effectiveness of legislation aimed at
promoting more efficient disaster payments systems, such as crop
insurance, over direct payments;
Year: 2003;
Related findings and conclusions: The report cites earlier studies
finding that crop disaster payments create an incentive for producers
to continue farming in high-risk areas, therefore continuing the
likelihood of losses and the need for assistance. Also, because
individual production histories are not always available, county
averages are often used to determine disaster payments, and producers
farming less than the county average receive payments exceeding their
actual losses. Finally, disaster payments do not have predictable
annual costs.
Economic study: Young, C. Edwin, Monte Vandeveer, and Randal Schnepf.
"Production and Price Impacts of U.S. Crop Insurance Programs,"
American Journal of Agricultural Economics, vol. 83, no. 5 (2001), 1196-
1203; Purpose of the study: To examine the impact of federal crop
insurance on farmers' crop decision making;
Year: 2001;
Related findings and conclusions: The presence of subsidized crop
insurance adds an estimated 960,000 acres to the annual planting of
grain, soybean, cotton, and five other row crops for the years 2001-
2010, with more than half of these plantings occurring in the Great
Plains. To the extent that subsidized crop insurance leads to expanded
acreage and higher production, market returns to producers will be
reduced for the major crops. This reduction partially offsets the
subsidy benefits of the insurance.
Economic study: Claassen, Roger, and Abebayehu Tegene, "Agricultural
Land Use Choice: A Discrete Choice Approach," Agricultural and Resource
Economics Review (1999), 26-36; Purpose of the study: To examine the
impact of certain economic and land quality factors on land use choices
between crop production and pasture or CRP in the Corn Belt between
1980 and 1987;
Year: 1999;
Related findings and conclusions: Conversion probabilities depend on
the relative returns from crop production and pasture, government
policy (CRP), and land quality. In general it is found that landowners
are less inclined to remove land from crop production than to convert
land to crop production. Corn Belt landowners appear to be generally
less inclined to remove land from crop production than to convert land
to crop production for land that was not eligible for the CRP. This is
true even for low-quality land that was not eligible for the CRP. The
asymmetry found here is consistent with a long-term trend toward
increasing cropland acreage in the Corn Belt. CRP eligibility
significantly increased the probability of converting land away from
crop production.
Economic study: Atwood, Joseph, Myles Watts, and Alan Baquet. "An
Examination of the Effects of Price Supports and Federal Crop Insurance
upon the Economic Growth, Capital Structure, and Financial Survival of
Wheat Growers in the Northern High Plains," American Journal of
Agricultural Economics, vol. 78, no. 1 (February 1996), 212-214;
Purpose of the study: To examine the economic impact of federal farm
program and crop insurance payments on wheat producers in High Plains
states, such as Montana;
Year: 1996;
Related findings and conclusions: Price support programs and crop
insurance are substitutes in reducing producer risk because the
availability of crop insurance led to little change in farm viability
if price supports were available. Moreover, the availability of crop
insurance in a setting with price supports allows producers to service
higher levels of debt with no increase in risk.
Economic study: Heimlich, Ralph. "Agricultural Programs and Cropland
Conversion, 1975-1981," Land Economics, vol. 62, no. 2 (May 1986), 174-
181; Purpose of the study: To examine the implications of legislation
to reduce the conversion of rangeland and other land to cropland;
Year: 1986;
Related findings and conclusions: For some newly converted highly
erodible cropland, price support and farm credit program subsidies
would make the difference between crop production revenues and variable
costs positive. Farm programs would provide a subsidy for conversion of
highly erodible land to cropland, averaging about $17 per acre.
Source: GAO's analysis of the studies cited.
[End of table]
[End of section]
Appendix VI: GAO Contact and Staff Acknowledgments:
GAO Contact:
Lisa Shames, (202) 512-3841 or shamesl@gao.gov:
Staff Acknowledgments:
In addition to the contact named above, James R. Jones, Jr. (Assistant
Director), Kevin S. Bray, Gary T. Brown, Barbara J. El Osta, Chad M.
Gorman, Grant M. Mallie, Lynn M. Musser, Alison D. O'Neill, Susan E.
Offutt, and Steve C. Rossman made key contributions to this report.
Also contributing to this report were Muriel C. Brown and Kim M. Raheb.
[End of section]
Related GAO Products:
Agricultural Conservation: USDA Should Improve Its Management of Key
Conservation Programs to Ensure Payments Promote Environmental Goals.
GAO-07-370T. Washington, D.C.: January 17, 2007.
Suggested Areas for Oversight for the 110th Congress. GAO-07-235R.
Washington, D.C.: November 17, 2006.
USDA Conservation Programs: Stakeholder Views on Participation and
Coordination to Benefit Threatened and Endangered Species and Their
Habitats. GAO-07-35. Washington, D.C.: November 15, 2006.
Agricultural Conservation: USDA Should Improve Its Process for
Allocating Funds to States for the Environmental Quality Incentives
Program. GAO-06-969. September 22, 2006.
Conservation Security Program: Despite Cost Controls, Improved USDA
Management Is Needed to Ensure Proper Payments and Reduce Duplication
with Other Programs. GAO-06-312. Washington, D.C.: April 28, 2006.
Agricultural Conservation: USDA Should Improve Its Methods for
Estimating Technical Assistance Costs. GAO-05-58. Washington, D.C.:
November 30, 2004.
Agricultural Conservation: USDA Needs to Better Ensure Protection of
Highly Erodible Cropland and Wetlands. GAO-03-418. Washington, D.C.:
April 21, 2003.
Agricultural Conservation: State Advisory Committees' Views on How USDA
Programs Could Better Address Environmental Concerns. GAO-02-295.
Washington, D.C.: February 22, 2002.
Environmental Protection: Federal Incentives Could Help Promote Land
Use That Protects Air and Water Quality. GAO-02-12. Washington, D.C.:
October 31, 2001.
[End of section]
FOOTNOTES
[1] According to U.S. Department of Agriculture's (USDA) National
Resources Inventory, cropland includes areas used for the production of
adapted crops for harvest; rangeland is composed principally of native
grasses or other native vegetation suitable for grazing; and
pastureland is land that is managed for introduced forage plants for
grazing. The USDA definitions of cropland, rangeland, and pastureland
are discussed in appendix II. For the purposes of this report, native
grassland generally refers to rangeland unless otherwise specified.
[2] GAO, Suggested Areas for Oversight for the 110th Congress, GAO-07-
235R (Washington, D.C.: Nov. 17, 2006).
[3] The marketing assistance loan program provides benefits to
producers of major crops when market prices are low. We did not analyze
the cost of marketing assistance loan payments. According to spending
forecasts, marketing assistance loan payments are predicted to be zero
for corn, soybeans, and wheat through 2011 because prices of these
crops are expected to be above the levels that trigger payments.
[4] Producers who grow a crop that is currently ineligible for crop
insurance may be eligible for a direct payment under USDA's Farm
Service Agency's Noninsured Assistance Program.
[5] Producers receive indemnity payments if they realize a qualifying
crop loss under the crop insurance program.
[6] Pub. L. No. 110-28, tit. IX, § 9001, 121 Stat. 112 (2007).
[7] Pub. L. No. 99-198, 99 Stat. 1354 (1985) (codified as amended in
scattered sections of titles 7 and 16 of U.S.C.)
[8] The cropland must have been converted for use in producing annually
tilled agricultural commodity crops in order to come under the
protections provided by Sodbuster.
[9] A conservation system is a combination of one or more conservation
practices that are approved by NRCS. These practices include structural
measures, such as terraces, or management techniques, such as
conservation tillage, used to enhance, protect, or manage natural
resources, including soil.
[10] All NRI numbers in this report are statistical estimates.
[11] FSA state officials in these states instructed county offices on
the procedures to use in collecting data on conversions of grassland
that had no cropping history to cropland, and they believe county
offices used consistent procedures. However, they have not confirmed
that the county offices used these procedures. As a result, some
counties may have overreported or underreported the number of acres
converted. In addition, it is possible that some of the converted land
identified as previously uncropped grassland had been converted to
cropland before FSA began keeping crop history records, was later
returned to grassland, and then was again converted to cropland.
[12] Scott Stephens, Johanna Walker, Darin Blunck, Aneetha Jayaraman,
and Dave Naugle, Grassland Conversion in the Missouri Coteau of North
and South Dakota 1984-2003, Ducks Unlimited (forthcoming). Information
from this report was presented as "Grassland Conversion and Risk Models
for the Missouri Coteau: Tools for Staying Ahead of the Plow," at the
annual conference of the South Dakota Wildlife Society, Oacoma, South
Dakota, March, 2007.
[13] These counties are in a contiguous area that runs from southwest
to northeast across Nebraska. NRCS officials believed conversion rates
were relatively high in the counties of this area. According to FSA and
NRCS officials in Nebraska, producers almost always carry out these
planned conversions.
[14] We selected South Dakota counties because conversion data were
available by county for 2005 and 2006 and conversions have received
considerable attention in the state. In conducting this analysis, we
assumed that the counties with the highest number of converted acres in
2005 and 2006 were also the counties with the highest conversion rates
in previous years.
[15] In addition, we separated the 66 South Dakota counties into three
groups based on the number of acres converted and found that the 22
counties with the highest number of converted acres had net crop
insurance benefits of about $600 million from 1997 to 2006, while the
22 counties with the lowest number of conversions had net benefits of
about $100 million for the same time period.
[16] Crop disaster assistance payments are approved by the Congress on
an ad hoc basis, and therefore these payments do not necessarily add to
government costs every year. However, ad hoc crop disaster assistance
payments have been available for nearly every crop year since 1988.
[17] GAO, Crop Insurance: Actions Needed to Reduce Program's
Vulnerability to Fraud, Waste, and Abuse, GAO-05-528 (Washington, D.C.:
Sept. 30, 2005).
[18] USDA Economic Research Service and Office of the Chief Economist,
An Analysis of the Effects of an Expansion in Biofuel Demand on U.S.
Agriculture, (Washington, D.C., May 2007).
[19] USDA National Agricultural Statistics Service, Acreage, June 29,
2007.
[20] To estimate crop prices for the 2007 crop enterprise, we used
regional average crop prices for January to July 2007.
[21] Since this land had not been in crop production previously, under
current legislation it would not be eligible for counter-cyclical
payments or direct payments.
[22] The Wetlands Reserve Program was authorized by the Food,
Agriculture, Conservation, and Trade Act of 1990 (1990 Farm Bill), Pub.
L. No. 101-624, 104 Stat. 3359, to assist landowners in restoring and
protecting wetlands. Producers enrolling in the program must agree to
implement approved wetland restoration and protection plans. In return,
participating producers receive payments based on the fair market value
of the land covered by the easement. The 2002 Farm Bill reauthorized
the program with mandatory funding through fiscal year 2007 and set a
maximum enrollment ceiling of 2.275 million acres.
[23] The Grassland Reserve Program was authorized in the 2002 Farm
Bill, which authorized enrollment of up to 2 million acres of restored
or improved grassland, rangeland, and pastureland under temporary and
permanent easements or rental agreements of at least 10 years. A total
of $254 million in mandatory funding between fiscal years 2003 and 2007
was provided. The 2002 Farm Bill also provided cost sharing payments at
75 percent to restore disturbed grasslands and 90 percent to protect
virgin grasslands.
[24] This survey was done in conjunction with our work on Agricultural
Conservation: USDA Needs to Better Ensure Protection of Highly Erodible
Cropland and Wetlands, GAO-03-418 (Washington, D.C.: Apr. 21, 2003).
See also the special publication, Agricultural Conservation: Survey
Results on USDA's Implementation of Food Security Act Compliance
Provisions (GAO-03-492SP, Apr. 21, 2003), which includes survey results
stratified by state.
[25] The NRI, conducted by NRCS in cooperation with Iowa State
University's Center for Survey Statistics and Methodology, is a
statistical survey of land use and natural resource conditions and
trends on U.S. nonfederal lands.
[26] NASS conducts yearly surveys to gather data on aspects of U.S.
agriculture production. NASS also administers the Census of
Agriculture, a comprehensive census of U.S. agriculture producers that
is conducted every 5 years.
[27] Scott Stephens, Johanna Walker, Darin Blunck, Aneetha Jayaraman,
and Dave Naugle. Grassland Conversion in the Missouri Coteau of North
and South Dakota 1984-2003, Ducks Unlimited (forthcoming). Information
from this report was presented as "Grassland Conversion and Risk Models
for the Missouri Coteau: Tools for Staying Ahead of the Plow," at the
annual conference of the South Dakota Wildlife Society, Oacoma, South
Dakota, March, 2007.
[28] Richard Conner, Andrew Seidl, Larry Van Tassell, and Neal Wilkins,
"United States Grasslands and Related Resources: An Economic and
Biological Trends Assessment," a special report prepared with financial
support from the National Cattlemen's Beef Association, The Nature
Conservancy, and Ducks Unlimited, 2001.
[29] N. Ramankutty and J. E. Foley, "Estimating historical changes in
land cover: North American croplands from 1850 to 1992," Global Ecology
and Biogeography, 8: 381-396 (1999).
[30] To qualify for farm program payments, a producer must certify
compliance with conservation provisions. To qualify under Sodbuster
provisions, a producer seeking to convert previously uncropped land to
cropland notifies FSA of that intention. FSA then requests a
determination for highly erodible land. According to FSA and NRCS
officials, after informing USDA of their intention to convert land,
producers seldom decide not to carry out the conversion.
[31] This survey was conducted in conjunction with our work on GAO-03-
418. Specifically, in September 2002, we surveyed staff--usually the
district conservationist--responsible for the conservation compliance
reviews in each of NRCS's 2,549 field offices that conducted compliance
reviews during the period 1998 through 2001 to obtain information on
their understanding and implementation of conservation provisions, and
their views on the effectiveness of these provisions.
[32] Rangeland is a USDA land cover/use category on which the plant
cover is composed principally of native grasses, grasslike plants,
forbs or shrubs suitable for grazing, and introduced forage species
that are managed like rangeland, with little or no chemicals or
fertilizer being applied. Grasslands, savannas, many wetlands, some
deserts, and tundra are considered to be rangeland. Pastureland is a
USDA land cover/use category of land managed primarily for the
production of introduced forage plants for livestock grazing.
Management of pastureland usually consists of treatments such as
fertilization, weed control, reseeding or renovation, and control of
grazing. Cropland is a USDA land cover/use category that includes areas
used for the production of adapted crops for harvest. Two subcategories
of cropland are recognized: cultivated and noncultivated. Cultivated
land comprises land in row crops or close-grown crops and also other
cultivated cropland, for example, hayland or pastureland that is in a
rotation with row or close-grown crops. Noncultivated cropland includes
permanent hayland and horticultural cropland.
[33] Between 1840 and 1996, the U.S. Department of Commerce, Bureau of
the Census was responsible for collecting Census of Agriculture data.
The Census of Agriculture Act, Pub. L. No. 105-113, 111 Stat. 2274
(1997), transferred the responsibility for the Census of Agriculture
from the Bureau of the Census to the Secretary of Agriculture who
subsequently delegated that responsibility to the Administrator of NASS.
[34] Idle cropland includes Conservation Reserve Program land unless
the land was used for haying or grazing.
[35] Michael D. Boehlje and Vernon R. Eidman, Farm Management, John
Wiley & Sons, New York, 1984, pp. 237-242.
[36] Specifically, a partial budget analysis examines the additional
returns that would result from adopting an alternative plan plus the
decreased costs from no longer using a base plan, minus the sum of the
additional costs of the alternative plan plus the reduced returns from
the base plan. The partial budget only considers the direct private
costs and benefits to the farmer and does not include the social costs
and benefits to society that a change would bring about, such as to the
environment or wildlife habitat.
[37] South Dakota State University, Department of Economics, Extension,
Management Tools and Links, Livestock Budgets, Beef Cow Unit, Feeder
Calf Sold, (B1CC). [hyperlink,
http://econ.sdstate.edu/Extension/Tools/budgets.htm].
[38] These rangeland production values are from the NRCS Web Soil
Survey. [hyperlink, http://www.websoilsurvey.nrcs.usda.gov/app/].
[39] Drovers is a monthly magazine and online livestock information
service that provides business management and marketing information for
all segments of the beef industry, including the female market, fed-
cattle markets, and stocker/feeder prices.
[40] These "other costs," such as veterinary and medicine, were
obtained from a South Dakota State University Extension area farm
management specialist.
[41] Also, since the 2007 crop has not been harvested, we assumed a 3-
year moving average county yield from NASS statistics, adjusted by
expert opinion from our interviews with South Dakota soil scientists.
[42] Per our discussions with NRCS officials concerning Hand County,
South Dakota, the soil types most likely to be converted were: ErB
(Eakin-Raber Complex-Undulating), HkB (Houdek-Prosper Loams,
Undulating), RaB (Raber Loams, Undulating), ReB (Raber-Eakin Complex,
Undulating), WmB (Glenham Loam, Undulating), WpB (Glenham-Cavo,
Undulating), and WzC (Glenham-Java, Rolling).
[43] For the cost estimates, we assumed that the cropping enterprise
used no-till treatment rather than conventional tillage.
[44] Land newly converted into cropland would only qualify for
marketing assistance benefits, such as loan deficiency payments, and
would not be eligible for countercyclical payments or direct payments
since the land would not have a cropping history.
[45] May 2007 supplemental appropriation legislation authorized crop
disaster assistance payments for crop years 2005, 2006, and early 2007.
Producers can receive a disaster assistance payment for only one of the
3 years. Because these payments had not been made as of July 2007, we
did not include estimates of them in our analysis.
[46] Crop disaster assistance payments, which likely will be made for
the 2006 crop year, are not included in this analysis.
[47] USDA Agricultural Projections to 2016, Interagency Agricultural
Projections Committee, Long Term Projections Report OCE-2007-1,
(Washington, D.C., February 2007).
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