Beginning with the 1985 Farm Bill, USDA began paying annual rental payments to landowners who enroll highly erodible land into the long term Conservation Reserve Program. While the CRP program has been successful at reducing soil erosion, it has also kept some potential cropland out of production. Although the first mission of the CRP is conservation, a consequence has been supply management of primary grain, oilseed, and fiber crops. With consideration of a new Farm Bill in 2007, the Agricultural Policy Analysis Center (APAC) at the University of Tennessee was retained by a number of organizations to evaluate the disassembly of the Conservation Reserve. What were the findings?

The CRP currently is at 34.7 million acres, although it has only reached that level in the last segment of the 20 year old program. APAC says its analysis of the CRP indicate significant reductions in acreage will impact market prices, farm income, and government outlays for USDA programs.

The APAC study, Analysis of the Economic Impacts On The Agricultural Sector On the Elimination Of The Conservation Reserve Program, says a substantial amount of land coming out the CRP would be planted. “If either federal farm legislation or federal budget priorities eliminates the CRP as the contracts expire, the Agricultural Policy Analysis Center (APAC) at the University of Tennessee estimates 37% of today’s 34.7 million CRP acres, or 12.6 million acres, will return to crop production by 2015. 71% percent of returning acres, or 9.0 million, will grow corn, soybeans and wheat.”

With increased production, the APAC study says commodity prices will decline below the trend line, with the average price of corn in 2015 at $2.29, soybeans at $5.20 and wheat at $2.92. That would be a $6.6 billion loss in net farm income according to APAC from commodity sales. Additionally, the government would have an outlay for direct payments, LDP’s, and counter-cyclical payments that would push farm program spending to a level of $3.8 billion above what would be expected in 2015, including the savings from not having to pay the CRP rental payments. Over the period of 2006 to 2015, the USDA would save $32.6 billion from the CRP program, but spend $45 billion in farm program payments.

Lower priced commodities would enhance export volume says APAC, “By 2015 corn exports would increase by 183 million bushels, 7.7% above the USDA baseline projection. Wheat and soybeans exports increase 12% and 18% respectively for the same time frame. Despite the increase in the volume of exports, their combined value falls by $600 million.”

In the alternative to letting the CRP program expire, APAC says expanding the program would raise commodity prices and reduce government farm program outlays, “If, however, CRP were expanded to either its current statutory limit of 39.2 million acres or, for example, 45 million acres, 2015 net farm income would rise by $600 million and $1.7 billion, respectively. The savings to the federal treasury over the 2006-2015 study period would be $6.3 billion and $12.7 billion, respectively, in farm program spending.”

Regarding the mechanics of converting CRP back to cropland, APAC says 70% of the expiring acreage is in grass, and the only downside would be the necessity for increased weed and grass control. CRP that is planted to trees would require tree removal for effective return to crop production. Some of the income from the sale of the trees could be used to cover the clearing expense. APAC estimates 16.5 million acres of CRP would be converted back to cropland by 2015, and 71% of that would be planted to corn, beans or wheat. The additional supply would lower crop prices by $3.3 billion for corn, $2.2 billion for soybeans, and $1.1 billion for wheat.

Summary:
University of Tennessee ag economists say reduction or elimination of the Conservation Reserve Program might save the USDA over $30 billion in outlays, but since crop production would increase, commodity values would decrease and the USDA would have to increase its commodity support programs by $45 billion. At the same time, farm income would drop $9 billion from lower commodity prices, despite a pick up in export business. The study said expansion of the CRP would have the opposite effect, and raise farm income, while reducing government spending.

(The published report on the study did not address the forecast for an increase in need for corn acreage in the coming years, due to increased market demand. The report also did not indicate a likelihood of reduced government spending in future years because of pressure from the World Trade Organization. While these two factors have not yet come to fruition, the APAC study apparently assumes the status quo in the farm program for coming years.--the farm gate editor)