Good Conservation Programs Are Specific to the Landowner's Situation
Posted: 03-Jan-2006; Updated: 05-May-2006
No-till planting of corn. (Credit: Gene Alexander/USDA)
In the early days of U.S. agricultural conservation policy, cost-sharing was a straightforward partnership between the farmer and society to encourage the use of simple practices such as terraces, contour plowing and windbreaks that would reduce soil erosion. Cost-sharing recognized that both the farmer and society had an interest to be served through these practices: the farmer to keep his primary productive asset—the soil—in place, and society to keep the farmer on the land and the soil out of ditches, rivers, reservoirs and the air.
Today, conservation's value comes from off-site environmental benefits (clean water, clean air) or from on-site benefits that do not directly benefit the producer (habitat for at-risk species). Many "practices" actually embody changes in management or production systems rather than discrete "add-ons" to an existing production system. In this modern context, traditional cost-sharing makes sense for only a portion of the portfolio of conservation actions society is encouraging producers to adopt. A more comprehensive classification of conservation assistance would include four classes of assistance (see table).
| Type of Assistance | Economic Use and Justification | Example |
|---|---|---|
| "Traditional" one-time cost-sharing | Should be used in situations where the practice has real costs of installation but few costs for continuing use. Both the producer and society realize gains, and each has an economic incentive to pay for the practice in proportion to the benefits accruing. The government’s one-time cost-share should equal the proportion of the total cost not covered by the farmer’s private benefit. | A good example is a terrace, which conserves moisture and soil for increased production and prevents off-site runoff, flooding and sedimentation. The cost-share encourages the producer to install the practice, but is a one-time payment that does not require a continuing subsidy from society. |
| "Management" or "continuing" cost-sharing | Similar to traditional cost-sharing, but the practice incurs a continuing cost to the producer that would, in the absence of cost-sharing, cause abandonment of the practice because the ongoing benefits do not equal the ongoing costs. Government's continuing cost-share should equal the portion of annual cost not covered by the farmer's private benefit. | Examples might be contour plowing, where the contour needs to be reestablished periodically, or delayed haying for nesting birds, which reduces forage value. |
| Incentive payment | No “cost” to share. Benefits to the producer outweigh the full cost of installation and there are social benefits, but farmers are reluctant to adopt the practice because of a steep learning curve, greater management requirement or some other impediment. An incentive payment large enough to overcome farmer reluctance should continue for two or three years, just long enough for the producer to experience the benefits. | Conservation tillage is a good example of this class because it usually produces net gains in revenue, but is a challenging system to learn and apply. The practice of precision farming may be another example. |
| Capital restriction | Benefits to the producer outweigh the full cost of installation. There are social benefits, but farmers do not have and cannot obtain sufficient capital or financing to make the investment. The appropriate assistance is the minimum needed to secure the financing, which may be an interest rate subsidy or simply a loan guarantee. | A manure storage system is a good example of this kind of practice, since it requires a large, up-front investment that pays dividends to the farmer (facilitating more efficient nutrient management) and society (reducing nutrient losses to the environment) over an extended useful life. |
In order to be cost-effective, conservation assistance should recognize the difference between these forms of assistance, and adjust the type and level of payment to the circumstances. For traditional cost-sharing, assistance should generally be one time, with the rate in proportion to the benefits accruing for both the farmer and society. Management or continuing cost-sharing would recognize that the flow of payments must continue or practices will be abandoned (and previous expenditures wasted). Again, the rate should be proportional to the benefits accruing for each party, but could decrease over time as the producer becomes more accustomed to the system or practice.
In contrast, an incentive payment aims to overcome the producer's reluctance to try the practice. These payments are only needed for a short period of time (one to three years)—just long enough to persuade the landowner of the practice's utility by increasing yields, reducing costs or both. Unavailable or high-cost capital causes landowners to forego investments they might otherwise like to make. Assistance to overcome such capital restrictions should be tailored to the cost and availability of financing (not the cost of the practice), and can take a variety of forms (interest rate subsidies, loan guarantees, direct loans and others).
Under no condition does a one-size-fits-all approach to cost-share rates do justice to the differences between needed assistance. Uniformly lowering (or raising) cost-share rates is not a substitute for fitting the assistance to the need. A 50% cost-share paid for conservation tillage every year for a decade is no bargain when a $2-$3 per acre incentive payment for two years would suffice to overcome reluctance to adopt a practice that has a "negative" cost (i.e., that makes money for the farmer). Paying half the cost of a $50,000 manure storage system is not a conservation bargain if a loan guarantee with no eventual cost would persuade the farmer to invest in it. Similarly, reducing cost-share to 50% for a wildlife habitat improvement project which produces no economic benefits for the farmer is not cost-effective if it is too low to encourage participation. Substituting an incentive payment for cost-sharing on a practice that imposes a continuing annual cost on the farmer is likewise poor economy.
The ideal conservation program design for U.S. Department of Agriculture programs is to match the type of payment to the kind of practice, to use the least amount of incentive necessary to encourage participation and to recognize the differing benefits received by producers and society.
Conservation Incentives thanks Ralph Heimlich, principal, Agricultural Conservation Economics, for this article.
