Conservation Policy: Compliance Provisions for Soil and Wetland Conservation

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To improve consistency between commodity and conservation programs, compliance provisions require farmers to meet some minimum standard of environmental protection on environmentally sensitive land as a condition of eligibility for many Federal farm program benefits—including farm commodity program payments. Under current compliance requirements, farm program eligibility could be denied to producers who:

• Fail to implement and maintain a Natural Resources Conservation Service (NRCS)-approved soil conservation system on highly erodible land (HEL) that is currently in crop production and was cropped before 1985—a provision known as conservation compliance;
• Convert HEL to crop production without applying an approved soil conservation system—referred to as sodbuster; or,
• Produce an agricultural commodity on a wetland converted after December 23, 1985, or convert a wetland after November 28, 1990, in a way that makes the production of an agricultural commodity possible—referred to as swampbuster.

Producers who violate compliance requirements risk losing all Federal farm programs payments—not just those payments that were (or might have been) made on the HEL or wetland in question.

Sodbuster and swampbuster provisions became effective on December 23, 1985, when the Food Security Act became law. Conservation compliance was implemented over a period of years. By 1990, producers growing crops on HEL were required to have an approved conservation plan. Plans were developed site by site to account for the broad diversity of resource conditions, cropping patterns, and producer preferences. By 1995, producers were required to be actively applying the conservation systems specified in their conservation plan. All three types of compliance have been continued in subsequent Farm Acts (1990, 1996, 2002, and 2008).

The 2008 Farm Act could affect producers who till native sod (land that has never been cultivated) in Prairie Pothole National Priority areas, which span Iowa, Minnesota, Montana, North Dakota, and South Dakota. Native-sod acreage that has been tilled for production of an annual crop could be ineligible for crop insurance and non-insured disaster assistance during the first 5 years of planting. The provisions would be implemented only with the approval of individual Governors in those five States.

Compliance mechanisms can also leverage farm program payments for environmental gain—without additional payments—to the extent that producers adopt conservation practices to retain farm program eligibility. Compliance mechanisms are a unique policy tool, distinct from—and in some ways more effective than—conservation payment incentives (e.g., cost sharing). In particular, compliance may be more effective than payments in deterring environmentally harmful actions. For example, a hypothetical subsidy program designed to prevent wetland drainage would require policymakers to pay for protection of all wetlands on agricultural land—a potentially expensive proposition—or decide which wetlands are sufficiently vulnerable to agricultural conversion as to warrant protection—a potentially difficult task. In contrast, swampbuster penalties are assessed only when a violation occurs, eliminating the need for broad-based subsidies or the need to anticipate the potential for a violation to occur on any given wetland. No direct costs are imposed on producers who comply, although there may be an opportunity cost associated with production forgone on wetlands.

The Compliance Incentive: Producers Weigh Benefits Against Costs

In making decisions about land use and production practices, agricultural producers respond to a range of market signals in the context of available technology, the resources they control (e.g., land), and their own skills and preferences. Any change in land use, investment (e.g., new machinery), or production practices (e.g., reduced tillage) involves both benefits and costs. Likewise, producers who decide to meet compliance requirements are likely to do so because the benefits of compliance outweigh the costs.

Farm Program Benefits and Compliance

Farm program benefits subject to compliance—including farm commodity, disaster, and conservation programs—ranged from $11.7 billion to $27.3 billion between 1997 and 2007. Farmers may also become ineligible for loan and loan guarantee programs that offer reduced interest rates or improved access to credit. Whether these benefits are large enough to leverage conservation depends on whether they exceed the cost of required conservation actions. Because farm program payment levels are set independent of the compliance requirement, there is no guarantee that they will exceed compliance costs on any given farm.

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Correlation between payments and conservation needs is critical to the (environmental) success of any compliance requirement, as on highly erodible cropland.

Compliance Costs

Producers may incur direct costs and/or opportunity costs in meeting compliance requirements. Direct costs include the cost of applying and maintaining a conservation system, which depends on the erosion standard to be met and the characteristics of the land (e.g., inherent erodibility). As eventually implemented, producers could meet compliance requirements by designing conservation systems to obtain "significant" erosion reduction using "technically and economically feasible" practices. In most cases, conservation systems could be based on inexpensive management practices such as conservation cropping, crop residue management, and conservation tillage. More than half of the HEL cropland acres that meet the Conservation Compliance requirement have approved conservation systems made up of these three practices alone or in combination.

Producers may also incur opportunity costs when they refrain from converting additional HEL or wetland that could have been profitably cropped. With wetlands, the opportunity cost equals the value of the land for crop production, less the cost of drainage and land use conversion (e.g., removing trees). HEL not previously cropped can be converted to crop production if an approved conservation system is applied. Compliance cost equals the lower of (1) the opportunity cost of forgoing agricultural production, or (2) the cost of applying a conservation system. On land not cropped before 1985, however, conservation systems must reduce erosion to the T level (soil loss tolerance level)—a potentially expensive task.

Enforcement

USDA's major enforcement tool is the annual Compliance Status Review (CSR). Each year, through the CSR, USDA field staff assess HEL and wetland compliance on a sample of "tracts" that are identified as part of farms receiving Federal farm program payments subject to compliance provisions. Some tracts are selected at random from the national Farm Service Agency (FSA) database, while others are added by State FSA offices because of potential for noncompliance. For example, tracts on which temporary variances or waivers were previously granted must be checked to establish a return to full compliance.

According to the CSR, overall compliance is high. Based on 1997 CSR data, 95.9 percent of producers subject to compliance were actively applying approved conservation systems. In more recent years, the CSR has shown compliance rates of roughly 98 percent. However, a recent GAO report (2003) identified a variety of deficiencies in the CSR, among them the methods used to select the sample for review, consistency, and clarity of guidance provided to local offices, data handling and analysis, failure to cite producers for significant deficiencies, and inadequate justification for waiver of penalties. This suggests that the actual level of compliance—and whether environmental gains have been realized—cannot be clearly understood using CSR data alone.

What Have Compliance Mechanisms Accomplished?

The rate of soil erosion on U.S. cropland and the rate of wetland drainage for agricultural production have dropped significantly in recent decades. Cropland erosion fell from 3.1 billion tons in 1982 to about 1.9 billion tons in 1997, a reduction of 1.2 billion tons or just under 40 percent. Wind erosion declined by 542 million tons per year (40 percent), while water erosion declined by 633 million tons per year (38 percent). The rate of wetland conversion for agriculture has also declined from 235,000 acres per year during 1974-82 to 19,000 acres per year for 1992-2002.

Although these trends coincide with implementation of compliance mechanisms, the trends alone are insufficient to show compliance's efficacy. Environmental gain can be attributed to compliance mechanisms (or any agri-environmental program) only to the extent that the incentive prompted a change in producer behavior. In other words, we can attribute wetland conservation or erosion reduction to compliance only if the producer or landowner would have done otherwise in the absence of compliance. Because producers respond to a wide range of market and policy incentives, isolating the effect of compliance mechanisms can be difficult.

Has Conservation Compliance Reduced Soil Erosion?

Between 1982 and 1997, annual soil erosion from cropland dropped by 1.2 billion tons. (Erosion reduction data are from the National Resources Inventory (NRI). Of this total, 442 million tons occurred on non-HEL land—where conservation compliance did not apply—leaving 732 million tons. Because compliance was formulated to avoid forcing land out of production, erosion reduction due to land use change (365 million tons, including CRP enrollment) was probably not caused by compliance, leaving 367 million tons. Erosion reduction to levels below the soil loss tolerance (T) level (36 million tons) also cannot be attributed to conservation compliance because conservation compliance required—at most—that erosion be reduced to T. Finally, erosion reduction on farms that do not receive government payments (36 million tons) cannot be attributed to compliance, leaving 295 million tons, or 25 percent of the 1.2-billion-ton reduction in cropland soil erosion between 1982 and 1997.

Furthermore, some erosion reduction may have occurred even in the absence of a compliance requirement. For example, conservation tillage can preserve soil moisture where rainfall is limited and can also reduce machinery, fuel, and labor costs, making it profitable for some producers regardless of its effect on soil erosion. Tillage and planting machinery needed to practice conservation tillage became widely available only in the mid- to late 1970s. Because widespread adoption of new practices often occurs over a long period of time, producers who included conservation tillage in compliance plans may have eventually adopted the practice for economic reasons even without the compliance requirement.

Still, evidence suggests that compliance did have an effect. Reductions in excess erosion (i.e., erosion in excess of T) were larger on farms that received farm program payments than on farms that did not. Excess wind erosion declined by 31 percent on farms receiving payments, but only 14 percent on farms not receiving payments. Excess water erosion dropped by 47 percent on farms receiving payments and by 41 percent on farms not receiving payments.

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Has Swampbuster Slowed Agricultural Wetland Conversions?

Though wetland conversion for agricultural production has declined over time, the role of swampbuster is not entirely clear. Swampbuster penalties constrain wetland conversion only when: (1) wetlands are located on farms that participate in Federal programs subject to swampbuster, (2) those wetlands could be profitably converted to crop production in the absence of swampbuster, and (3) other policies (e.g., Section 404 of the Clean Water Act) are not applicable or not effective in deterring wetland conversion.

Many wetlands, ostensibly subject to swampbuster, are in remote areas unlikely to be converted to cropland because they cannot be easily incorporated into an existing farm. Of roughly 90 million acres subject to swampbuster, only 12.9 million are adjacent to existing cropland. These wetlands appear to be located in areas that receive large government payments.

Commodity Payments and Wetlands Adjacent to Existing Cropland

Even so, swampbuster deters conversion only if conversion would otherwise be profitable. In the absence of swampbuster sanctions, Claassen et al. (2000) estimate that between 1.5 million and 3.3 million acres of wetlands could be profitably converted to crop production under favorable market conditions.

Finally, swampbuster is just one of a number of policies designed to deter or discourage wetland drainage. Section 404 of the Clean Water Act (CWA) gives the Environmental Protection Agency and the Army Corps of Engineers authority to regulate wetland drainage. Since the January 2001 Supreme Court decision in Solid Waste Agency of Northern Cook County (SWANCC) v. United States Army Corps of Engineers, however, the extent of that authority with respect to isolated wetlands (which are likely to occur in agricultural areas) has been in doubt. While many State and local governments also have wetland laws and regulations on the books and some have increased wetland regulation since the SWANCC decision, many heavily agricultural States have little wetland regulation. In these States, swampbuster may be the only remaining policy disincentive to wetland drainage.

Future of Compliance

Compliance mechanisms have seemingly been effective in promoting soil and wetland conservation. While USDA's Compliance Status Review appears to have flaws, these flaws do not mean that compliance rates are low. Evidence from other sources, primarily the National Resource Inventory (NRI), shows that soil erosion on HEL cropland and wetland conversion for agriculture have been sharply reduced. Farms that receive government payments appear to have reduced erosion more sharply than those that do not receive payments, especially in the case of wind-erodible soils. Nonetheless, enforcement of compliance requirements will continue to be a challenge.

Finally, other problems could also be addressed using compliance mechanisms. Claassen et al. (2004) show that a compliance mechanism could be used to address nutrient runoff from land in crop production by encouraging the use of nutrient management or buffer practices. More generally, 86 percent of U.S. cropland is on farms that receive Federal program payments subject to compliance requirements. Thus, compliance could provide leverage in addressing any agri-environmental issue that occurs largely on land in crop production. However, adding multiple or costly compliance requirements could threaten the goal of income support by increasing the cost of farm program participation relative to its benefits.

Farms and Acres Covered by Direct Payments, Crop Insurance, and Conservation Programs

In recent years, direct payments (DPs) have been a key source of environmental compliance (EC) incentives. Under EC, farmers must apply approved soil conservation systems to highly erodible cropland and refrain from draining wetland to maintain eligibility for most USDA agricultural programs. Federally subsidized crop insurance is the only large USDA program that is not currently subject to EC.
 
Direct payments may be reduced or eliminated in the next farm bill (due in 2012) to help reduce the Federal budget deficit. An end to DPs would sharply reduce compliance incentives for many farms. Some farmers (but not all) would continue to be subject to EC because of other payments, primarily conservation and disaster assistance. One way to fill the incentive gap for other farmers would be to extend EC requirements to crop insurance. The extent to which crop insurance could replace compliance incentives now supplied by DPs will depend, in part, on the extent to which farmers who receive DPs also buy crop insurance.

Roughly 141,000 farmers (7 percent), operating on 33 million acres of cropland (8 percent), received DPs in 2010 but did not purchase crop insurance or receive conservation payments. For these farms, extending compliance requirements to cover crop insurance would not replace DP incentives.

In 2010, 181,000 farms (9 percent), operating on 141 million acres of cropland (36 percent), received DPs and also purchased crop insurance, but did not receive conservation payments. For these farms, making crop insurance subject to compliance sanction could help compensate for compliance incentives lost if direct payments end.

Farmers who do not receive DPs or other payments subject to compliance but do purchase crop insurance may be subject to compliance requirements for the first time. In 2010, an estimated 53,000 farms (2.4 percent) with 17 million crop acres (4.3 percent) received neither conservation payments nor DPs but did purchase crop insurance. Some of these farms may already be subject to compliance requirements because of disaster payments. Of course, farms facing compliance requirements based on crop insurance coverage would be affected only if they continued to purchase crop insurance.