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Breaking Land – Breaking Trust

Monday, August 15, 2011

Secretary of Agriculture Tom Vilsack is moving to help out farmers in drought-stricken areas by giving them the option to cut hay and graze livestock on land that had been taken out of production through the Conservation Reserve Program, or CRP. The program is the nation’s premier public/private conservation partnership protecting marginal and highly erodible farmland.

And while the public reaps enormous benefits from CRP -- from cleaner water to protecting soil for generations of farmers to come -- industrial agriculture interests and their patrons in Congress view it solely as a means of maximizing profit.

See, to big agribusiness, CRP is just a place to store “surplus” land until it is profitable to bring it into crop production. From their lobbyists’ perspective, taxpayers are simply renting the land to ensure crop prices remain high enough that farmers do not need government price subsidies. When crop prices get high enough or supplies too low, they’re ready to push aside the conservation mission to boost corn and soybean production.

But the program requires landowners to repay the rent they collected from taxpayers if they withdraw from the program, and Big Ag feels that farmers should be able to walk whenever they please, without penalty.

Suggest cutting the lavish direct payments that go out regardless of need as part of a budget deal, however, and Ag’s lobbyists howl that those contracts must be iron-clad.

To be fair, the changes Secretary Vilsack announced on Monday (Aug. 8) are a common-sense approach to a temporary problem. They allow a farmer in the final year of a CRP contract to harvest grass from the plots set aside under the contract so that the hay can be sold or donated to farmers suffering from drought conditions. In the 26 states where the drought is having a substantial impact on livestock, the change also extends by a month the rules allowing emergency grazing on CRP-protected land. In exchange for this flexibility, farmers forgo a portion of the “rental” payments they get from the government under their CRP contracts.

But that’s not good enough for some people. Those who see the program as a resource that they can exploit at taxpayer expense are quietly pushing for additional “emergency” changes that would redefine the basic premises of the program and co-opt it into another form of subsidy. And in this era of high commodity prices, farmers are looking at planting even their front yards to take advantage of the market’s bounty.

It’s vital for those who care about conservation to be vigilant, encouraging changes that actually help farmers and the environment while fighting off misguided, destructive ploys to gut the program under the guise of “helping” farmers.

Why do we have the CRP?

The purpose of the Conservation Reserve Program, created in 1985, is to set aside land that is not suitable for row cropping by “renting” it from farmers at discounted rates. By getting landowners to voluntarily give up the right to “produce” on unsuitable land, the program reduces erosion and the resulting damage to rivers, streams, lakes and even oceans from sediment, nutrients and toxic chemicals. And by encouraging restoration of wildlife habitat on that land, the program also protects biodiversity by maintaining a base of wild or semi-wild land amid an endless landscape of mono-cropped fields.

Environmental and conservation groups strongly support, and vocally defend, the program because of its significant benefits for cleaner water and wildlife habitat. Unlike direct payments and other traditional farm subsidies that only benefit a handful of profitable agribusinesses, CRP has a direct and wide public benefit. Because it also props up row-crop prices by reducing supply, it has also been very popular with farmers. Congress originally authorized the program at 45 million acres but later cut it to 32 million, and the number of farmers wanting to take part exceeds the allotted budget with each successive sign-up.

During the 10-year period of a CRP contract, plowing of the land is generally forbidden, as is most grazing, mowing or other manipulation. The land does not have to be restored to pristine condition, but it cannot be managed in a way that reduces the intended erosion and related protections. The taxpayers, after all, are not paying to manage crop prices; they are paying to prevent pollution – because that’s much cheaper than cleaning it up later, and regulation is the only way to protect water and soil.

At the end of that 10-year lease, farmers are free to rip up the grass cover that has been protecting soil, water and wildlife habitat and put the land back into growing crops. A landowner can break the contract and get out of the program anytime he chooses, but if he plows up the land before the 10-year period is up he must return all of the government’s rental payments and can be assessed an additional penalty of up to 25 percent.

Big Ag’s Big Maneuvers

Now, however, Big Ag’s lobbyists are pressuring Congress and the Administration to allow landowners to break their CRP contracts – and the promises to taxpayers those contracts represent – while keeping the money. They argue that farmers should be allowed to withdraw from the program without penalty in order to expand their cropping acreage to take advantage of high commodity prices and to grow other –unproven – biofuel crops.

Authors of a study in this week’s (Aug. 8) Proceedings of the National Academy of Sciences argued that allowing farmers to harvest biomass for cellulosic biofuels on CRP-protected land would keep them in the program and keep them from growing conventional crops to increase revenue. But this approach assumes that cellulosic biofuels will become commercially viable, and to date they have failed to meet federal production goals and there is increasing pessimism over their prospects.

The Economics of Ripping up CRP

The reality is that right now, crop prices are high enough to encourage farmers to put profitable land back into production despite the CRP penalties, and Agribiz is just looking for another excuse to not play by the rules.

The average rental price under CRP is around $49/acre nationally (it is higher in the Corn Belt). Thus, a farmer with 100 acres in the CRP receives on average $4,900 a year in rent. If the maximum penalty were applied, a farmer who broke the contract would have to pay back about $6,000 for every year of collected rent.

The question becomes, “Is $6,000 to put 100 acres back in production a cost barrier, given the current markets?”

According to the most optimistic observers, with corn fetching $7 a bushel, farmers can expect net profits of as high as $700 per acre. Most farmers would find this number laughably high; a common rule of thumb is that in order to provide enough income to support a family for a year (as well as to have money to farm the next year), a corn farmer needs to make a net profit of around $300/acre. At an average national yield of 160 bushels per acre, an acre of corn produces around $12,000 in net income. To keep $300, the farmer’s goal is to make sure that no more than $11,700 goes to the seed corn companies, equipment salesman, gas, chemicals, taxes and fertilizer.

But land in CRP is not going to yield 160 bushels per acre. It is in the Conservation Reserve because it doesn’t produce enough corn to be profitable. The program accepts only the “worst” land offered – the most marginal and highly erodible. Even in the Corn Belt, that land is only going to produce 120-130 bushels per acre at most. For the purposes of this analysis, let’s err in favor of Big Ag and assume that it can generate only 125 bushels, or around $8,500/acre. If the farmer can keep the costs of fertilizer required to make the land produce even that much corn very low, he might get to keep $100 an acre.  If he skimps on fertilizer too much, he is likely to have a lower yield but come away with about the same profit anyway.

So now the question becomes: If a farmer facing a potential penalty of $6,000/year can make $10,000/year farming that 100 acres if he takes it out of CRP, are the economics a barrier to breaking the contract?

A farmer who has had land in the CRP for only one year could withdraw that 100 acres by returning the $4,900 he received, plus any penalty, and make a profit of $10,000. So by withdrawing from CRP he could make an extra $5,100.

If crop prices remain at the $5-6/bushel level (or higher), farmers further into their contracts would also profit by putting CRP land back into production. A farmer two years into a contract might have to pay up to $12,000 back, but even at $5/bushel corn on moderate yields, he would come out more than $40,000 ahead over the next eight years. Three years in and an $18,000 penalty would leave him $35,000 ahead. While it wouldn’t be profitable to withdraw in years 6-10, this doesn’t really matter much – at present, more than 50 percent of the acreage in the program is either less than 5 years into a contract or within a year of coming out. If the goal is to lower, but not collapse, food prices, then no more than 10-15 percent of the acreage should be considered for removal in any case.

So the bottom line is that since the 1990s, CRP has already accounted for a farmer’s potential need to withdraw.

CRP does cost money – around $2 billion a year. But it has reduced erosion of topsoil into rivers and streams by an estimated 22 percent – more than 500 million tons – even though less than 10 percent of cropland is in the program. It is the single largest conservation program in the country and the largest tree-planting program ever conducted. At a cost of only $4 per ton for the erosion it prevents (how much would you charge to remove 1,700 pounds of soil from a stream?), and without counting the added benefit of millions of hunting and fishing license sales, recreational boating trips and related spending and environmental protection, the program is one of the best deals ever offered to US taxpayers. It’s a government program that actually works as intended and delivers the promised results.

Instead of breaking trust with taxpayers, Congress should deal them a stronger hand. There is definitely room for improving CRP, but those changes lie in strengthening the program so that taxpayers get even more benefit, not less.

Here’s what should be done:

  • Require farmers who drop out of the program to implement a conservation plan that protects soil and water – keeping soil erosion at sustainable rates, controlling ephemeral gullies and maintaining 35-foot buffers along all waterways. Farmers could receive reduced rent payments for maintaining basic practices they have already installed.
  • The program should provide an option for long-term or permanent purchase of cropping rights on the worst land. CRP gives the highest preference to the most erodible land. By offering longer contracts for the “worst of the worst,” it can protect the small percentage of land that is responsible for the worst soil erosion.
  • Prevent the harvest of CRP grasses and habitat and resist misguided efforts to turn them into biofuels. Grasses and habitat help reduce erosion, but they don’t eliminate it, especially if the land is actively farmed. There may be a need for a smaller, more targeted program that provides additional taxpayer benefits by removing “less bad” land from row-crop production in exchange for reducing subsidies for biomass production, but that effort does not belong in the CRP.

 

The reality is that farmers have identified CRP land as not desirable to farm, and taxpayers assist in removing it from production in return for erosion control benefits–not to provide additional subsidies to Big Ag. Taxpayers already finance industrial-scale production of commodities through direct subsidies and crop/revenue insurance, and they have financed expansion of the corn-ethanol industry that has propped up commodity prices. All this has helped create the false “crisis” of sky-high promises that has the Ag Lobby pushing to break the promises made to taxpayers under the Conservation Reserve Program. CRP doesn’t require modification to accommodate the needs of industrial farming–if change is needed, it is to further insulate the land protected by the CRP from a return to the destructive farming practices that led to its inclusion in the program in the first place.