August 2, 2017
In order to be eligible for most federal farm programs, including the taxpayer subsidized federal crop insurance program, farmers whose land includes highly erodible areas or wetlands must adhere to specific conservation requirements. These requirements, known collectively as conservation compliance, are in place to ensure that our shared natural resources have a minimum level of protection. Conservation compliance, in this case, acts as a countervailing force against the tendency of production subsidies to foster excessive erosion and destruction of sensitive or marginal lands.
To receive federal subsidies, farmers must apply an approved soil conservation system on all highly erodible land, and they must not drain wetlands. Since conservation compliance was enacted by Congress in 1985 and put into practice on the ground in 1990, the policy has been relatively successful at protecting some of the country’s most vulnerable land and resources. Major implementation and enforcement problems, however, still hamper the policy’s effectiveness.
Tying conservation compliance to federal crop insurance subsidies, which currently cost taxpayers over $8 billion a year, is a natural fit – in exchange for public support, farmers agree to steward agricultural lands well and to preserve publicly shared natural resources. Despite the obvious need for conservation compliance, Congress removed crop insurance from compliance requirements in 1996 in an attempt to stimulate greater farmer interest in purchasing crop insurance. Four years later, however, participation in the program (and costs to taxpayers) took off and Congress realized that conservation compliance would diminish in importance over time if it was not re-linked to crop insurance subsidies. Wisely, Congress reversed gears and returned crop insurance to the compliance fold as part of the 2014 Farm Bill.
The Importance of Conservation Compliance
A recent report from the United States Department of Agriculture’s (USDA) Economic Research Service (ERS) entitled, “Conservation Compliance: How Farmer Incentives Are Changing in the Crop Insurance Era,” supports the importance of retaining the link between conservation compliance and crop insurance subsidies. The report focuses on how the highly erodible land compliance requirements affected soil conservation, the impact of compliance on natural resources, and if the 2014 Farm Bill measures worked to improve compliance.
The report reviews some of the successes of the conservation compliance policy in protecting our nation’s most sensitive agricultural lands and natural resources. Between 1982 and 1997, for example, the report noted that in areas prone to high soil erosion from the flow of water, erosion was reduced at much higher levels on land subject to compliance (39 percent, or 6.6 tons per acre) as compared to fields not subject to compliance (24 percent, or 3.9 tons per acre). On cropland that had high water erodibility, reduction due to conservation compliance was roughly 70 percent higher on highly erodible land in fields subject to compliance.
Compliance incentives (i.e., the value of production subsidies from the commodity and crop insurance programs) vary based on the types of land where individual farms are located and different commodity price scenarios. Given that the cost of commodity programs and the cost of crop insurance subsidies move in contrary motion – when market prices are low, the cost of commodity subsidies goes up but the cost of crop insurance subsidies goes down (and vice versa) – were insurance subsidies not linked to compliance, the effectiveness of the policy would be seriously decline in rising price and high price situations. Hence, the current policy of linking compliance to both programs makes sense – compliance incentives from commodity program subsidies are sufficient when prices are low, but when prices are at mid-level or high, the incentive to comply switches over to receipt of crop insurance subsidies.
The report also finds that the incentives flowing from compliance are higher in the Northern Plains than in the Corn Belt. The first reason for this is that insurance premiums are higher there. Therefore, the majority portion of the premium that is paid by the taxpayer is higher, which creates a larger incentive to remain in compliance. Second, in the Prairie Pothole region where farms often have small wetlands that are convertible to crop production but represent a small percentage of the total farm, the potential loss of program benefits if the wetlands were drained would be very substantial,
The report concludes with this very important message, driving home the point that compliance would be far less effective were it not linked to crop insurance subsidies:
If the link between crop insurance premium subsidies and Compliance were severed, the Compliance incentives would decline on many farms. Under the medium-price scenarios, the number of acres with small incentives… increases roughly 65 percent, from 27 million acres to 45 million acres… The number of acres with Compliance incentives that are likely to exceed Compliance costs … falls from more than 25 million acres to less than 14 million acres, a decline of 44 percent.
Implications for the Next Farm Bill
Conservation compliance is critical to ensuring that our nation’s farms are sustainable long-term, and that our shared natural resources are protected for this and for future generations. Yet, enforcement of compliance is spotty at best, and current policy fails to target some of the most serious resource concerns. The upcoming 2018 Farm Bill offers several opportunities for Congress to strengthen conservation compliance, and to implement changes that will help more producers make conservation activities a regular part of their farming plan.
One issue the report highlighted as warranting attention was the lack of data availability. To improve transparency and ensure that taxpayer dollars are being well-spent, USDA should collect, aggregate, and publish conservation compliance data. Without this data, the public – and USDA – have no way of knowing whether conservation compliance is working and how it might need to be improved.
The next farm bill should mandate collection and reporting of aggregated data at the county level on wetland determinations, flood damage surveys, acres in compliance and out of compliance, benefits withheld, and HEL determinations. All data collection should also include robust protections ensuring producer anonymity.
Spot-checking and compliance reviews by NRCS should also be improved. The current five percent spot-check rate maintained by NRCS is only a national average. As a result, compliance spot checks are not occurring uniformly across states. For example, USDA’s Office of Inspector General (OIG) found that some states, including states with a historically large number of tracts subject to compliance reviews, no spot checks were conducted in 2015. In fact, a review of annual government data reveals that in a majority of states there is no enforcement of compliance at all.
This kind of gross inconsistency is unfair to farmers. In a small handful of states there are real consequences for being out of compliance, but in most states that is not the case. From a resource perspective, the inconsistency has no doubt resulted in soil and wetland losses that could otherwise have been prevented. In order to make enforcement more uniform and accountable, the next farm bill should require USDA to conduct spot checks on five percent of farmers in each state. A dedicated, permanent, and mandatory funding stream for compliance implementation and enforcement would ensure that USDA has the resources necessary to effectively fulfil its obligations.
Another much needed improvement to increase the effectiveness of conservation compliance would be to require that Highly Erodible Land Conservation Plans be designed to achieve a level of erosion not greater than the soil loss tolerance level (T), while allowing for a five-year interval for full implementation for plans to achieve the tolerance level. This was the original policy adopted by Congress in 1985, but over time it has been substantially weakened, allowing for conservation plans to be approved at twice the acceptable soil loss level, which is clearly not sustainable.
Enactment of data collection and transparency, enforcement funding, and sustainable soil loss standards would be very important steps forward for conservation compliance for the 2018 Farm Bill to tackle.
The new ERS report serves as a solid piece of evidence that conservation has been effective in protecting our natural resources and the keeping it linked to crop insurance benefits is critical. While there are still some in Congress and in the crop insurance industry that continue to take issue with that linkage, the current prognosis is the decision Congress made in 2014 will hold in 2018 and into the future. Conservation compliance policy and implementation, however, has very serious weaknesses that must be addressed. NSAC looks forward to continuing to work Congress to ensure that conservation compliance remains firmly tied to the federal crop insurance program and that needed reforms are made to improve the program in the 2018 Farm Bill.