New USDA Report on Crop Insurance and Sodbusting
July 1st, 2011
On Thursday, June 30th, USDA’s Economic Research Service (ERS) released a report entitled, “Grassland to Cropland Conversion in the Northern Plains: The Role of Crop Insurance, Commodity, and Disaster Program,” which estimates the impact that federal crop insurance and disaster assistance have on grassland conservation in the region.
Summary of Findings
The report has four major findings, which are summarized below. You can read the full 85-page report on the ERS website. More about the ERS methodology for this report is included at the bottom of this post.
- The Northern Plains region accounted for roughly 57 percent of grassland-to-cropland conversion between 1997 and 2007.
- Roughly 1 percent (or 770,000 acres) of rangeland acreage in the Northern Plains was converted from range/grassland to cropland between 1997 and 2007.
- A 5-year ban on crop insurance on new breakouts in the Prairie Pothole Region would slow but not stop conversion of grasslands to croplands in the region.
- Federal programs including crop insurance, marketing loan benefits, and disaster assistance increased cropland conversion in the region by 2.9 percent between 1997 and 2007.
Sodsaver — Background in Brief
The Sodsaver provision of the 2008 Farm Bill was intended to limit crop insurance payments on PPR land in the first five years of agricultural production. The program was developed to protect native prairie and other grasslands in the PPR region from being converted into relatively unproductive cropland.
Unfortunately, Sodsaver legislation was significantly watered down by Congress during 2008 farm bill deliberations. The final legislation gave state governors the authority to choose whether or not to implement Sodsaver in the region, and unfortunately, not a single governor chose to do so. Enacting a nationwide, non-optional sodsaver provision in the 2012 Farm Bill is a priority for NSAC and many farm conservation organizations.
The report provides an extensive analysis of how the implementation of a Sodsaver-type program may impact land use decisions in the PPR. The authors conclude that preserving native grasslands in the PPR will likely require a broader approach than just implementing the Sodsaver program at the state level. The authors suggest that an approach similar to Swampbuster – which denies all federal farm payments to farms who drain wetlands to grow crops – may be more effective at conserving native grasslands.
Recent RMA Action
USDA’s Risk Management Agency (RMA) has continued to consider administrative changes to the crop insurance program that could limit the use of crop insurance on newly broken native sod. On June 9, RMA issued a crop insurance program bulletin with new limitations on insurance for crops produced on newly broken native sod. These limitations will take effect for the 2012 crop year for all crops with a contract change date on or after June 30, 2011 that are in the region affected by the bulletin.
For New Breaking written agreements where the producer cannot substantiate that the acreage has ever been broken out for crop production, the agreement will limit crop insurance coverage to a maximum of 65 percent of an estimated crop yield on the land, known as the T-yield. See our June 10 blog post for a detailed description of the new RMA bulletin.
In light of market pressures to plant more corn, wheat and other commodities typically grown in this region, it seems that there is an even more urgent need to protect native prairie in the Northern Plains. Over the last three centuries, half of the native grassland making up 1 billion acres of land in the United States has been converted to human usage, most of which has been to cropland. Given recent cuts to conservation spending, bi-partisan support for crop insurance programs, and market pressures from high crop prices, this trend will likely continue. Removing public subsides for the destruction of native prairie and other prime grasslands needs to happen now more than ever. A strong sodsaver provision should be included in 2012 Farm Bill.
More on ERS Report Methodology
The report uses econometric and simulation modeling to predict how farm program payments induce land use changes in the Northern Plains region, with a particular focus on the Prairie Pothole Region (PPR). The PPR includes parts of Iowa, North and South Dakota, Minnesota and Montana and is an important breeding ground for migratory birds and provides a range of other critical ecosystem services. The region hosts grasses, scrubs and other native vegetation which are extremely difficult to re-establish after being disturbed by agriculture or other forms of development.
The report used National Resource Inventory (NRI) data from 2007 to determine the rate and quantity of cropland conversion in the PPR. For the simulation modeling, the researchers held constant a wide-array of variables including soil productivity, availability of irrigation, flooding/wetness, and erodibility.
The authors summarize their methodology as follows:
To gauge the potential effect of Sodsaver, we devise seven representative farms based on seven North Dakota and South Dakota counties where there is information to suggest that grassland to cropland conversion has been high… For comparison, we develop farms representing two Southeastern South Dakota counties (Turner and Union; located in LRR M (Western Corn Belt) where most land is already cropped and conditions are similar to those in the Western Corn Belt (we refer to these as “comparison” counties).
For each representative farm, we develop a joint distribution of prices and yields for three major crops (corn, soybeans, and wheat) and forage harvested through grazing. We use these distributions along with data on crop and grazing acreage to estimate the effect of crop insurance and SURE payments on the mean and variance of crop revenue, net returns (revenue net of production costs), and the producer’s willingness to pay to avoid greater revenue variability under Sodsaver. Elasticities of grassland to cropland conversion drawn from the literature are used to estimate the potential change in the rate of land use conversion under Sodsaver. The elasticity of grassland to cropland conversion with respect to crop returns is an estimate of the change in grassland to cropland conversion given a 1-percent change in net return to crop production.