72nd SWCS International Annual Conference July 30-August 2, 2017 Madison, WI

1. Conservation Compliance:
How Incentives are Changing in
the Crop Insurance Era
Roger Claassen and Maria Bowman
Soil and Water Conservation Society Annual Conference
Madison, WI, August 2, 2017

2. 2
Compliance ties farm program benefits to conservation
• Since 1985, eligibility for most federal, agricultural payments tied to
– Highly erodible Land Conservation (HELC): Approved soil conservation system
– Wetland Conservation (WC): Refrain from draining wetlands
• Violators risk loss of benefits throughout farm
• Applies to a wide range of Federal farm programs
– Commodity programs
– Crop disaster assistance
– Crop insurance premium subsidies (after 2014)
– Conservation payments

3. 3
2014 Farm Act changed programs linked to Compliance
• Key changes:
– Ended Direct Payments
– Ended crop disaster assistance program (SURE)
– New “shallow loss” programs
– Re-linked crop insurance premium subsidies to compliance
Research questions:
– How do compliance incentives differ from an extension of 2008 Act?
– What is the role of crop insurance subsidies?

4. 4
Measuring farm-level Compliance incentives: Metrics
• Ideal metric is ratio of farm-level Compliance benefits to Compliance costs
• Farm-level measure is needed because program eligibility is at issue
• Combine benefit estimate with two indicators of cost
– Benefits per acre of land subject to HELC or WC
– Benefits per $ of (potential) return on land subject to HELC or WC
• Crop rental rate is proxy for return to land
Benefits to farmer Costs to farmer
• Commodity programs
• Disaster assistance
• Crop insurance premium subsidies
• Conservation programs
Good farm-level data is available
• Costs of maintaining soil conservation
systems on HEL fields
• Profit foregone on land that could have
been profitably converted to crop
production without Compliance
No farm-level data available

5. 5
Measuring farm-level Compliance incentives: Data
• Overall objective is to estimate the area of highly erodible land and
wetland for various levels of Compliance incentive, e.g.,
– How many HEL/wetland acres are on farms that do not receive benefits?
– How many HEL/wetland acres are on farms that receive benefits greater rental
value of land subject to compliance?
• National Resources Inventory (NRI):
– land use and land condition for >500,000 points of agricultural land
– Provides soil erodibility and identifies wetland
– Full survey of land base (does not depend on participation in USDA programs)
• USDA Administrative data
– Define “farming operations” as collection of field (Common Land Units)
– Farm program participation and payment information

6. 6
Linking data NRI and USDA administrative data
Source: Economic Research Service
Farming Operation
(Linked by FSA Customer ID)
511,038 NRI points
 All cropland, pasture,
CRP; Range, forest in CLU
 487,779 matched to CLU
 23,259 not matched
CLU 04
. .
241,678 farming operations
1.15 million FSA farms
5.5 million CLUs
40% of land in 6 largest crops
FSA Administrative
Farms
258,506 FSA farms
2.2 million CLUs
NRI Point/
Common Land Unit
NRI points

7. 7
Farm benefits depend on policy change and crop prices
Source: Economic Research Service
0
2
4
6
Low Medium High
Billiondollars
Expected benefits, 2008 Farm Act
Conservation Commodity Disaster
0
2
4
6
Low Medium High
Billiondollars
Expected benefits, 2014 Farm Act
Conservation Commodity Insurance
Expected Prices for Compliance analysis (crop insurance base prices)
Barley Corn Cotton Sorghum Soybeans Wheat
Low (2004)
Medium (2010)
High (2013)
3.28
4.27
5.25
2.83
3.99
5.65
0.68
0.72
0.81
2.8
3.79
5.28
6.72
9.23
12.87
3.4
5.42
8.78
Price scenario Price scenario

8. 8
0
10
20
30
40
50
0 0-0.2 0.2-0.4 0.4-0.6 0.6-0.8 0.8-1.0 >1.0
MillionAcresinHELfields
Compliance incentives ($ per $ rental value)--cropland in HEL fields
2008 Act 2014 Act
HELC incentives vary across farms; Similar to 2008 incentives
Medium prices
2014 Act (orange bars)
9 million acres (10%) on farms
with benefits = 0
27 million acres (30%) on farms
with benefits 0-0.4 $/$ of rental
value
25 million acres (28%) on farms
with benefits > 1 $/$ of rental
value
2008 Act (blue bars)
Source: Economic Research Service

9. 9
0
10
20
30
40
50
0 0-0.2 0.2-0.4 0.4-0.6 0.6-0.8 0.8-1.0 >1.0
MillionAcresinHELfields
Compliance incentives ($ per $ rental value)--cropland in HEL fields
2008 Act 2014 Act
HELC incentives vary across farms; Similar to 2008 incentives
Medium prices
2014 Act (orange bars)
9 million acres (10%) on farms
with benefits = 0
27 million acres (30%) on farms
with benefits 0-0.4 $/$ of rental
value
25 million acres (28%) on farms
with benefits > 1 $/$ of rental
value
Source: Economic Research Service
Percent of cropland in HEL fields with low
Compliance incentives, 2014 Act
($0-0.4/$ rental value (>0))

10. 10
Aggregate results mask large change in farm-level incentives,
2008 Farm Act-2014 Farm Act
Medium prices
Percent change in Compliance incentivesCultivated cropland in HEL fields
0
2
4
6
8
10
-100 -75 -50 -25 0 25 50 75 100
MillionacresHELfields
Percent change in Compliance incentives,
2008-2014 Farm Act
30 million acres44 million acres
Source: Economic Research Service

11. 11
0
10
20
30
40
50
0 0-0.2 0.2-0.4 0.4-0.6 0.6-0.8 0.8-1.0 >1.0
Millionacresofcropland
inHELfields
Compliance incentives ($ per $ rental value)--cropland in HEL fields
Same range Lower range in 2014 Higher range in 2014
Large acreage of HEL on farms that changed incentive ranges
Medium prices
Source: Economic Research Service

12. 12
0
10
20
30
40
50
0 0-0.2 0.2-0.4 0.4-0.6 0.6-0.8 0.8-1.0 >1.0
MillionAcres
Compliance incentives ($ per $ rental value)--cropland in
HEL fields
2014 Act 2014 Act, No Insurance Subsidy
Premium subsidies are large part of Compliance incentive
Medium prices
2014, no premium subsidy (grey)
9 million acres (10%) on farms
with benefits = 0
45 million acres (50%) on farms
with benefits 0-0.4 $/$ of rental
value
14 million acres (12%) on farms
with benefits > 1 $/$ of rental
value
Source: Economic Research Service

13. 13
0
10
20
30
40
50
0 0-0.2 0.2-0.4 0.4-0.6 0.6-0.8 0.8-1.0 >1.0
Millionacresofcropland
inHELfields
Compliance incentives ($ per $ rental value)--cropland in HEL fields
Low price scenario, 2014 Act Medium price scenario, 2014 Act
High price scenario, 2014 Act
• Medium and high price scenarios very similar
• Compliance incentives larger in low price scenario
2014 Act Compliance incentives are sensitive to price
Source: Economic Research Service

14. 14
Aggregate result masks large change in farm-level incentives
Medium price scenario Low price scenario
Percent change in Compliance incentives
Cultivated cropland in HEL fields
0
2
4
6
8
10
-100 -75 -50 -25 0 25 50 75 100
Millionacrescroplandin
HELfields
Percent change in Compliance incentives,
2008-2014 Act
16 million acres 59 million acres
0
2
4
6
8
10
-100 -75 -50 -25 0 25 50 75 100
Millionacrescroplandin
HELfields
Percent change in Compliance incentives,
2008-2014 Farm Act
30 million acres44 million acres
Source: Economic Research Service

15. 15
Wetland Compliance—Prairie Pothole States only
Potentially convertible wetland as proportion of cropland
• Cropped wetlands
• Non-cropped wetland with
– Seasonal hydrology
– Land Capability Class (LCC) ≤ 2 OR LCC=3 and productivity ≥ county
median for cropland
Source: Economic Research Service

16. 16
0
1
2
3
4
0 0-1 >1.0
MilloinAcres
Compliance incentives ($ per $ of rental value)—cropland
in HEL fields
Wetland Compliance incentives are relatively strong
medium price
375,000 acres (11%) of vulnerable wetland
on farms that receive no payments
475,000 acres (15%) on farms that receive
payments in range 0-1 $/$ rental value
2.6 million acres (75%) on farms with
compliance incentives large enough to
exceed profit from drainage
Source: Economic Research Service

17. 17
Conclusions
• HELC compliance incentives are similar in the 2008 and 2014 Acts, but…
– Compliance incentives vary widely across farms
– National results mask some large farm-level changes
– Compliance incentives are lower on some farms
• Crop insurance premium subsidies are important to Compliance incentive
– Re-severing link would significantly reduce incentives on many farms
– Because premium subsidies rise with crop prices, they can help maintain
incentives when crop prices are high
• WC incentive strong for most Prairie Pothole Region farms

18. 18
Measuring farm-level Compliance incentives: Data
National Resources Inventory (NRCS)
Data on >500,000 “points” of ag land
USDA Administrative data (mostly)
• Farm-level Compliance incentive
metrics (>200,000 farms)
NRI points linked to a farm
Land area by Compliance incentive
Example: Land subject to HELC on farms with incentives:
• $X - $Y per acre subject to HELC
• $Y - $Z per dollar of rental value for land subject to HELC
Source: Economic Research Service
USDA Administrative data
• Field-level HEL determinations
by Common Land Unit
NRI points linked HELC status

19. 19
HEL cropland and land in HEL fields (CLUs)
• Field is subject to HELC if
– more than 1/3 of soils in field or
– 50 acres in field are highly erodible
• Roughly 73 percent of highly erodible soil is in field subject to HELC
• Allows measurement of difference in erosion rates
Field
Determination
All Land HEL %HEL
Acres (000)
HEL field 92,759 60,424 65
Not HEL 217,563 22,724 10
Total 310,322 83,148 27
Percent of cultivated cropland in HEL fields (CLUs)
As Proportion of cultivated cropland
(.75,1]
(.5,.75]
(.25,.5]
[0,.25]
No data

20. 20
Source: Economic Research Service
0
10
20
30
40
50
0 0-20 20-40 40-60 60-80 80-100 >100
MillionAcres
Compliance incentives ($ per acre)—
cropland in HEL fields
2008 Act 2014 Act 2014 FB, No Insurance Subsidy
Cropland in HEL fields by Compliance incentive range
Scenarios:
• 2014 Act (orange bars)
• 2008 Act (blue bars)
• 2014 Act, No Insurance Subsidy
(grey bars)

21. 21
Potentially convertible wetland by Compliance incentive
0
0.5
1
1.5
2
2.5
3
3.5
4
0 0-100 >100
MillionAcres
Compliance incentives ($ per acre)—
cropland in HEL fields
2008 FB 2014 FB 2014 FB, No Insurance Subsidy
Source: Economic Research Service

22. 22
Soil erosion on cultivated cropland, 1982-2012
• Previous ERS research: up to 25 percent of 1982-1997 soil erosion reduction
could have been due to HELC
• How much erosion reduction that can be directly attributed to HELC?
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
1982 1987 1992 1997 2002 2007 2012
BillionTonsPerYear
Sheet and Rill Wind
HELC Implemented 1985-95
Source: Economic Research Service analysis
of NRCS National Resources Inventory

23. 23
0
2
4
6
8
10
12
14
16
18
20
1982 1987 1992 1997 2002 2007 2012
Predictederosion(tons/acre/year)
Designated HEL Not designated HEL
6.6 TAY
Predicted erosion for NRI points in cultivated cropland
highly erodible for water, 1982-2012
Note: The height of the bar is the soil erosion estimate. The error bars represent a 95 percent
confidence interval.
3.9 TAY Difference=2.7 TAY (significant from zero)
Source: Economic Research Service

24. 24
Predicted erosion for NRI points in cultivated cropland
highly erodible for wind, 1982-2012
Note: The height of the bar is the soil erosion estimate. The error bars represent a 95 percent
confidence interval.
0
2
4
6
8
10
12
14
16
18
1982 1987 1992 1997 2002 2007 2012
Predictederosion(tons/acre)
Designated HEL Not designated HEL
3.2 TAY
2.3 TAY
Difference: 0.9 TAY (not significant from zero)
Source: Economic Research Service