TESTIMONY OF KATHERINE R. SMITH

DIRECTOR, RESOURCE ECONOMICS DIVISION

ECONOMIC RESEARCH SERVICE, U.S. DEPARTMENT OF AGRICULTURE

BEFORE THE SENATE COMMITTEE ON AGRICULTURE, NUTRITION & FORESTRY

FEBRUARY 28, 2001

Thank you Mr. Chairman for inviting me to testify before this Committee on conservation programs in the current farm bill. The conservation title is an important component of farm policy, and it is most appropriate for the Committee to review these programs as it prepares to develop new farm legislation.

Agricultural production affects the environment in many ways. Over the past 15 years, better conservation and stewardship efforts have improved agriculture's performance, reducing soil loss, improving wildlife habitat, improving air and water quality, and preserving and restoring wetlands. However, in recent years changes in production (e.g., the proliferation of large confined animal feeding operations) have produced new environmental problems. Emerging issues include damage to water quality from crop and livestock nutrient runoff, carbon sequestration to mitigate global warming, and air quality problems from particulate matter, chemicals, and livestock-produced odor.

USDA Programs

The U.S. Department of Agriculture offers farmers an array of conservation and environmental programs, ranging from land retirement that reduces soil erosion and provides other environmental benefits, to easements that protect farmland from urban sprawl. In all, USDA spent more than $3.4 billion on conservation and environmental programs in FY2000. A sense of how USDA conservation funds have been spent over the last 15 years is provided by considering four broad categories of programs, classed according to the approach taken to promote conservation and stewardship, that account for most USDA expenditures.

Land retirement and easement programs ($1.8 billion in FY2000) compensate farmers and landowners for the income foregone from farming when they agree to plant permanent vegetative cover or restore wetlands on cropland. These programs also provide the producer with technical assistance and cost-sharing for practices to establish the cover or restore the wetland. In the Conservation Reserve Program (CRP), producers also receive an annual rental payment on land retired from crop production to a conserving use. The Wetland Reserve Program (WRP) restores wetlands on agricultural lands by purchasing easements from willing landowners. The Farmland Protection Program (FPP) provides matching funds to state, tribal, and local farmland protection programs that purchase development rights on agricultural land.

Land retirement programs have dominated agricultural conservation expenditures since the mid-1980s, accounting for more than half of USDA spending on conservation since 1986. The CRP alone accounted for 96 percent of spending on land retirement programs. WRP (starting in 1992) and FPP (starting in 1996) expenditures are more modest. Since 1996, CRP rental payments averaged $1.5 billion per year, while annual expenditures on WRP easements ranged from $73 million in 1997 to $211 million in1998. A total of $35 million was authorized for FPP in the 1996 farm bill. All of these funds were obligated as of September 1998 for financial and technical assistance in farmland protection.

Cost share and incentive payments ($209 million in FY2000) encourage farmers and landowners to adopt specific production or structural practices such as conservation tillage, nutrient management, terraces, and windbreaks. Programs include the Environmental Quality Incentives Program (EQIP), and the Wildlife Habitat Incentives Program (WHIP).

Since the mid-1980s, cost share and incentive payments have accounted for just under 10 percent of USDA conservation spending. Annual funding for cost sharing has declined from an average of $233 million over 1988-1996, to less than $200 million in 2000.

EQIP combined and refocused the Agricultural Conservation, Great Plains Conservation, Colorado River Salinity Control, and Water Quality Incentives Programs. Unlike the programs it replaced, half of EQIP funds are earmarked for practices or systems relating to livestock production. Overall, 58 percent of EQIP funds have gone to livestock operations and 20 percent of program funds have been allocated to livestock waste management, a 50-percent increase in total funding for livestock waste management compared to 1995.

Technical assistance and extension programs ($600 million in FY2000) provide information and technical expertise to farmers and landowners to develop and implement conservation plans. Conservation-related extension activities and technical assistance not tied to land retirement or cost-share programs accounted for 16 percent of USDA conservation and environmental spending over the past 15 years. Technical assistance funding was higher in the 1990s than it was in the 1980s.

Compliance provisions require adoption of conservation practices as a condition of eligibility for other farm program payments. Under highly erodible land (HEL) conservation provisions (known as Sodbuster), producers who bring highly erodible land into production must apply a strict conservation plan if they want to remain eligible for farm program participation and payments. Conservation compliance on previously cropped HEL requires less stringent soil conservation systems than required by Sodbuster. Wetland conservation provisions (Swampbuster) deny farm program payments to producers who convert wetlands for agricultural production. Compliance provisions require no direct expenditure, "leveraging" expenditures in other farm programs to produce an incentive for conservation. Because of broad participation in other farm programs, 109 million acres of highly erodible cropland and 77 million acres of wetlands are subject to compliance and Swampbuster provisions. However, development of conservation plans, wetland delineation, and monitoring and enforcement activities do require USDA staff and funding resources.

Additional USDA funds for conservation purposes are administered by the Forest Service for forestland conservation, under public works programs such as the Emergency Watershed Protection program, and for conservation data collection and research.

Benefits From USDA Programs

Since 1985, agriculture's environmental gains have been impressive, both in physical terms and in estimated economic benefits due to environmental improvement. Neither the full costs nor all the benefits of conservation programs have been estimated, primarily because benefits from conservation are largely not priced in markets. While it is difficult to separate the influence of programs from the effects of changing market conditions and technical advances, ERS analysis suggests that conservation and environmental policies have played a critical role in producing these gains.

Soil erosion on cropland fell nearly 40 percent from 1982 to 1997, dropping from 3.08 billion tons per year to 1.89 billion (1997 National Resources Inventory, National Resources Conservation Service, USDA). Both wind and water erosion declined, and reductions occurred on both highly erodible and non-highly erodible cropland. Benefits of erosion reduction enjoyed by producers and society as a whole due to conservation compliance are estimated to exceed $1.4 billion per year. Benefits from erosion reductions alone on acreage enrolled in the CRP are estimated to exceed $690 million per year, compared with average annual program outlays of $1.5 billion.

Wetland conversion for agricultural use fell from 593,000 acres per year in 1954-74 to 26,000 acres per year in 1992-97 (Agricultural Resources and Environmental Indicators, 2000, Economic Research Service, USDA). During 1982-92, farmers were net wetland creators, restoring 11,000 more acres of land to wetlands than were converted to agricultural uses. The Wetlands Reserve Program has been the single largest federal wetland restoration effort, enrolling over 990,000 acres since 1990, an average of roughly 100,000 acres per year (including the Emergency Wetlands Reserve Program expenditures in 1993-94). Swampbuster provisions are estimated to have discouraged conversion of 1.5 to 3.3 million wetland acres to agricultural uses. While the benefits of wetland habitat restoration have not been measured, wetlands are among the most biologically productive ecosystems in temperate regions, rivaling tropical rain forests.

Wildlife habitat improved by enrolling land in the CRP is estimated to provide over $700 million per year in benefits from enhanced hunting and wildlife viewing opportunities (Feather, Hellerstein, and Hansen, Economic Valuation of Environmental Benefits and the Targeting of Conservation Programs: The Case of the CRP, Economic Research Service, USDA; see www.ers.usda.gov/publications/aer778/). In the prairie pothole region of North and South Dakota and Minnesota, the CRP contributed to a 30 percent improvement in duck production, or 10.5 million more ducks, between 1992 and 1997.

Carbon sequestration, while not the original objective of the CRP, is significant on lands enrolled in the CRP. An acre enrolled in CRP in the Great Plains pulls approximately 0.85 metric tons of carbon out of the atmosphere each year.

There have been significant accomplishments from USDA's conservation efforts. However, gains can be transitory because in the absence of Federal and State programs, producers have little economic incentive to maintain conservation practices.

New Challenges

Despite this substantial progress, conservation and environmental problems for agriculture may be expanding. Before 1990, environmental policy for agriculture focused largely on conserving soil to preserve agricultural productivity. The 1990 farm act expanded agri-environmental objectives to include water quality, air quality (dust), and wildlife habitat. More recently, nutrient runoff from agricultural sources has been identified as a key source of remaining U.S. surface water quality problems. Nutrient runoff from commercial fertilizer, animal waste, and non-farm sources is reducing water quality in estuaries throughout the United States. Flows of nutrients to the Gulf of Mexico are the suspected cause of a large zone of hypoxic (oxygen-depleted) waters (Goolsby, 1999), creating a "dead zone" largely devoid of marine life.

It will be a challenge to maintain environmental gains achieved to date and to address an expanded range of environmental problems. Results will depend on program design, implementation, and funding. CRP and conservation compliance provisions (Sodbuster and Swampbuster) provide valuable lessons for effective policy design. Some features that have proven particularly cost-effective are discussed below.

Environmental targeting channels funding to those areas where the environmental benefits are greatest relative to costs. One approach to environmental targeting--accepting bids based on an Environmental Benefits Index (EBI)--- has been successfully applied in the Conservation Reserve Program (CRP). The EBI is a comprehensive scoring system that scores the environmental benefits of acres offered for enrollment.

Producer flexibility allows farmers to work with local USDA staff to devise a least-cost approach to meeting environmental goals, rather than imposing a uniform, one-size-fits-all approach. This flexibility has been successfully applied in implementation of conservation compliance provisions: More than 1,600 different conservation systems (combinations of conservation practices) have been approved, reflecting the diversity in American agriculture. Practices included in conservation systems vary widely depending on climate, crop mix, soils, and topography.

Program coordination ensures that programs do not duplicate or offset each other. Coordination is complicated because of the wide range of programs provided and environmental regulations imposed by Federal and State agencies. Implementation of conservation compliance provisions in 1985 demonstrated successful coordination of environmental and income support programs.

A more complete discussion of lessons learned from present conservation programs and analyses of potential new conservation policy tools are available in a new ERS report, Agri-Environmental Policy at the Crossroads: Guideposts on a Changing Landscape, available from ERS (www.ers.usda.gov).