WASHINGTON, August 2, 2017 - Linking conservation compliance to crop insurance as well as commodity payments ensures that farmers are motivated to prevent soil erosion and preserve wetlands regardless of whether crop prices are high or low, a new Agriculture Department study says.
At current price levels for corn and soybeans, the risk of losing crop insurance premium subsidies is a “a big part of the incentive” to comply with the conservation rules, said Roger Claassen, the lead author of the study by USDA’s Economic Research Service. As prices drop, commodity payments become the bigger incentive, the study found.
The 2014 farm bill required farmers to comply with soil and wetlands conservation rules to receive premium subsidies for crop insurance. Conservation compliance was already required to participate in commodity programs.
Crop insurance is more valuable, and the conservation compliance linkage more significant, when commodity prices are higher, according to the analysis. Higher commodity prices raise premiums and make premium subsidies relatively more valuable to farmers.
The linkage between conservation compliance and commodity payments is more important when market prices are lower, because programs like Price Loss Coverage trigger payments when commodity prices are low.
“Whether crop prices are low or whether they are high, farmers have a pretty substantial incentive to meet the conservation requirements in either case,” Claassen told Agri-Pulse.
The study also found that on land where farmers are complying with the conservation requirements, the reduction in soil erosion is 70 percent higher than on land where they are not.
The ERS analysts tested the impact of conservation compliance under three different price scenarios that reflect three different years: 2004, 2010 and 2013. Only the “low” and “medium” scenarios are relevant to today’s market.
- Under the “low” price scenario, which reflects the market in 2004, corn is worth about $2.83 a bushel, soybeans about $6.72 a bushel, wheat $3.40 a bushel and cotton 68 cents a pound.
- The “medium” price scenario reflects the market in 2010: Corn is worth $3.99 a bushel, soybeans $9.23, wheat $5.42 and cotton 72 cents. Corn and soybean futures are currently at the medium-price level. Cotton is well into the low-price scenario. Wheat futures are running in between the medium- and low-price levels.
In the medium-price range, 27 percent of cropland, or 25 million acres, that is highly erodible is on farms where the incentives for conservation compliance are “clearly large enough” to offset the cost to farmers, the study found.
At the low-price range, the conservation incentives clearly exceed compliance costs on 47 percent, or more than 42 million acres, of the highly erodible land. (For the purpose of the study, land rental rates were used to estimate the maximum cost of complying with incentives. Researchers lack hard data on actual compliance costs.)
The release of the ERS study comes as lawmakers are preparing to write a new farm bill. At a July 25 hearing, Senate Agriculture Chairman Pat Roberts, R-Kan., called the crop insurance linkage “unneeded, costly, burdensome.”
Ron Rutledge, president and CEO of Farmers Mutual Hail Insurance Co. of Iowa, said that while some farmers initially had problems with the new rules, USDA’s Risk Management Agency worked with companies and insurance agents to contact “producers who weren’t in compliance and get them in compliance. There were some exceptions, and hopefully we can avoid those in the future.”William Cole, chairman of the Crop Insurance Professional Association, told Roberts that the crop insurance provision hit fruit and vegetable growers in the Pacific Northwest especially hard because they hadn’t been subject to the conservation requirements before. Farmers who miss deadlines for certifying compliance face “harsh penalties,” he said.
(Corrects Ron Rutledge's title.)
