Agricultural producers mitigate risks of doing business in various ways by utilizing private sector risk management options and enrolling in various federal subsidy programs. Private risk management techniques include hedging, vertical integration, forward contracting, private insurance, diversifying operations, and many more. Producers also enroll in taxpayer subsidized crop insurance, government-set price supports, shallow loss entitlement programs, and other government interventions. With either private or federal dollars, producers also manage short- and long-term risks, particularly those related to drought or flooding, by implementing best management conservation practices. Soil and water conservation practices not only reduce the risk of crop loss, but also save costs and increase revenues; these practices include conservation tillage, crop rotation, cover crops, installation of stream buffers and terraces, and other approved conservation practices.
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However, upfront investments such as planting trees for erosion-reducing windbreaks may be required to reap long-term benefits, leading to questions about land tenure and whether landowners or tenants should make short- and long-term investments to conserve soil and water. Other challenges to greater adoption of risk-reducing agricultural conservation practices include public benefits versus on-farm costs, certain crop subsidies working at cross-purposes with conservation practices, and the historic lack of proper oversight of conservation accountability standards tied to the receipt of farm subsidies.
Mitigating Risk with Agricultural Conservation Practices
Numerous on- and off-farm benefits occur as a result of well-implemented agricultural conservation practices, leading to less risk for both producers and off-farm entities such as water utilities, communities, and various industries. Off-farm benefits of soil and water conservation include downstream fishing benefits, reduced dredging costs, lower flood risk, less water pollution, lower costs for removing contaminants from drinking water supplies, better recreational activities, etc.[1] Table 1 includes numerous ways that conservation practices reduce risk and costs, increase farm revenues, and result in other on-farm benefits, including common conservation practices that achieve each of these goals.
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Note that Table 1 references “conservation tillage,” which includes the following three types of tillage. According to Purdue University, conservation tillage is defined as the retention of at least one-third of crop residue on the soil, meaning that if corn was previously planted on a field, at least one-third of the corn stalks, cobs, and leaves would be left to conserve soil after harvest.[2] See Appendix 1 for more information.
- No-till/strip-till/vertical tillage: minimal amount of surface area is disturbed; with strip-till, mole knives are used to till only a narrow band of soil
- Ridge-till: row cultivation results in 4- to 6-inch “ridges” that are later reduced during planting
- Mulch-till: 100 percent of surface area is tilled
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Cost-Saving or Revenue-Enhancing On-farm Benefits |
Types of Practices |
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Reduce costs for expensive synthetic fertilizer, herbicides, and pesticides; retain soil nutrients to reduce input costs.[3] |
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| Efficient use of costly resources: drought mitigation via water conservation |
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| Efficient use of costly resources: conserve rich topsoil |
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| Higher yields and better soil health for long-term productivity [6] |
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Less crop failures and loss of income from drought, storms, or flooding [8] |
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| Reduced equipment, repair, maintenance, labor, and fuel costs |
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Challenges
While the benefits of conservation practices are clear, structural/implementation and adoption challenges remain. Structural/implementation challenges include the following:
- Conservation accountability standards: the government’s oversight and monitoring of conservation accountability standards, which require farmers to conserve highly erodible land and wetlands in exchange for farm subsidies, have historically suffered from a lack of resources and personnel; if conservation benefits are to be realized, monitoring and enforcement of these provisions must be improved. Conservation standards must also be flexible to allow producers to use local knowledge and skills to maximize conservation practices where they are most beneficial. See Appendix 1 for more information.
- Targeted, cost-effective programs: federal agricultural conservation program dollars could be better targeted to the most cost-effective projects with the greatest return on taxpayer investment. Currently, some taxpayer dollars cover agribusinesses’ normal costs of business, such as cleaning up livestock waste. Other programs prioritize regional equity instead of cost-effectiveness, leaving riskier projects or those with less public benefits to crowd out more efficient projects.
- Perverse incentives: certain taxpayer subsidies work at cross-purposes with conservation practices instead of investing in programs that deliver public benefits. For instance, the federal crop insurance program subsidizes producers’ premium subsidies and private insurance companies’ administrative and operating costs. This leads to a crowding out of private sector risk management options and more risky production practices as unnecessary risks are shifted from agribusinesses and private companies such as Wells Fargo and John Deere Risk Protection onto taxpayers.
Adoption challenges include short-term gains versus long-term productivity and public benefits versus on-farm costs:[10]
- Short-term gains at expense of long-term productivity: unlike tenants, landowners are more likely to have long-term productivity in mind when planning future agricultural production. If tenants and landowners fail to agree to appropriate conservation plans, short-term gains may come at expense of long-term soil health.[11] Related is the fact that the average age of a farmer is nearly 60 years old so conservation practices may not implemented if landowners plan to retire over the next few years. Current crop prices can also affect long-term conservation; for instance, over the past seven years, crop prices skyrocketed as corn ethanol mandates, drought, increased exports, and other factors increased demand, leading to the conversion of sensitive land into intensive cropland production to reap short-term gains. For this reason, Iowa State University’s Extension Office separates conservation practices into nine “operational” and nine other “permanent” categories landowners or tenants can utilize to reduce risk.[12]
- Public benefits versus on-farm costs: certain conservation benefits such as lower risk of water pollution and flooding may benefit downstream users such as water utilities and communities but costs are incurred on the farm, leading to a discrepancy as to who pays and benefits. However, information sharing, trading systems, regional partnerships such as the Mississippi River Basin Initiative, and other innovative programs help bring these constituencies together to mitigate risk, reduce costs, and enhance both on- and off-farm benefits of agricultural conservation practices.
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Conclusion: Recommendations
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“If there weren’t farm subsidies, the landscape would be a lot more diversified.” – Grain and former vegetable farmer from northeast Nebraska, July 2014 |
Numerous agricultural conservation practices reduce on- and off-farm risks, enhance farm income, and save costs, especially during years of drought, flooding, or severe storms. Farmers are usually aware of these benefits, but more can be done to educate about new cost-saving and best management practices proven to enhance income in other regions or countries.[13] Federal programs such as the Conservation Reserve Program and Conservation Stewardship Program support these types of practices, but more can be done to ensure that they are targeted to the most cost-effective areas and practices, are accessible to beginning farmers or tenants who do not own land, and result in measurable and positive outcomes for taxpayers. Eliminating perverse incentives that spur the conversion of environmentally sensitive lands to cropland production also reduces farmers’ risk profiles and enhances long-term productivity. Conservation practices and accountability standards, if implemented properly, can produce off-farm benefits as well through lower costs of flood protection programs, environmental clean-up, and water treatment, saving millions or even billions in taxpayer dollars.
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For more information, please contact Josh Sewell at 202-546-8500 or josh [at]taxpayer.net.
Appendix 1
Conservation practices and accountability standards must be tailored to local conditions and informed by local farmers and conservation experts. As an example, conservation accountability (conserving land in exchange for commodity and crop insurance subsidies) requires conservation of wetlands and highly erodible land, specifically the use of no-till or conservation tillage practices on hilly land. However, when only a small portion of a field is hilly but the entire field is categorized as “highly erodible land,” no-till practices can be required on all acres. As a result, some crops have lower yields since fields are more uneven. The opposite can also be true, depending on local conditions, soil types, topography, agricultural residues left on the field after harvest, etc., demonstrating that not all conservation plans should be one-size-fits-all.
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[1] http://www.fao.org/docrep/004/y2781e/y2781e03.htm#TopOfPage
[2] http://www.ctic.purdue.edu/media/pdf/TillageDefinitions.pdf
[3] http://www.ers.usda.gov/ersDownloadHandler.ashx?file=/media/913013/aer792h_002.pdf
[4] http://www.sare.org/Learning-Center/Books/Managing-Cover-Crops-Profitably-3rd-Edition
[5] http://www.fao.org/fileadmin/templates/tc/tce/pdf/Grenada_draft_final_report_May_2008.pdf
[6] http://www.rma.usda.gov/pubs/rme/covercrops2.pdf
[7] http://www.fao.org/docrep/004/y2781e/y2781e04.htm#TopOfPage
[8] http://www.fao.org/fileadmin/templates/tc/tce/pdf/Grenada_draft_final_report_May_2008.pdf
[9] http://edis.ifas.ufl.edu/ae486
[10] http://www.fao.org/docrep/004/y2781e/y2781e03.htm#TopOfPage
[11] http://foodandagpolicy.org/strategy/provide-risk-management-tools-producers
[12] http://www.extension.iastate.edu/agdm/crops/html/a1-41.html
[13] http://www.fao.org/docrep/004/y2781e/y2781e05.htm
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