Conventional wisdom holds that efforts to protect natural resources
and the environment affect resource-related jobs, and consequently
the economies of nearby communities. Recent ERS analysis of the
impact of the Nation’s largest farmland retirement program—the
Conservation Reserve Program—on rural economic growth suggests
otherwise.
The Conservation
Reserve Program (CRP) aims to reduce soil erosion, improve air
and water quality, enhance wildlife habitat, preserve the productive
capacity of the Nation’s farmland, and support farm income
by taking land out of production for 10-15 years and putting it
into conservation uses. Landowners and farm operators have voluntarily
enrolled approximately 35 million acres of highly erodible and environmentally
sensitive farmland in the program. In return for planting qualifying
land to grasses, trees, and other protective vegetative cover, enrollees
receive an annual rental payment, are reimbursed for roughly half
the cost of establishing approved ground cover, and may be eligible
for other incentive and maintenance payments. The program provides
a stable source of income to participants and produces a wide range
of environmental benefits. But by retiring farmland, it also reduces
local demand for farm inputs, marketing services, and labor. To
limit the local economic impact of taking land out of production,
no more than 25 percent of a county’s cropland can normally
be enrolled in the CRP without formal approval to exceed this cap.
Nonetheless, the program is often blamed for the loss of farm-related
jobs and the depopulation of nearby communities that provide agricultural
and retail services.
ERS analyses of CRP enrollment patterns and employment/population
trends indicate that high levels of CRP enrollment tend to reduce
local job growth by a small but statistically significant amount
in the years immediately following cropland retirement. Farm and
farm-related employment is likely to decline as farmland is taken
out of production. Over time, however, local economies adjust to
changing business opportunities, and employment trends return to
levels typical of similar areas with little or no CRP enrollment.
In addition, nonfarm output and employment may increase due to CRP’s
impact on farm household income and the CRP-enhanced recreational
opportunities created. Contrary to popular belief, no statistically
significant evidence was found that CRP results in a systematic
loss of population, even among counties with high enrollments. Thus,
the conservation benefits attributable to the CRP do not appear
to come at the expense of a permanent slowdown of local job growth
or to systematically threaten the survival of rural counties.
Farm and Nonfarm Responses to CRP Largely Offset in Short
Term
Past studies have predicted the employment impact of enrolling
cropland in the CRP. They generally conclude that CRP enrollment
reduces farm and nonfarm employment, particularly in areas where
enrollment is high. ERS recently estimated the economywide impact
of allowing all CRP contracts to expire, freeing enrolled acreage
to return to production. Consistent with previous research, allowing
CRP land to return to production would increase farm employment,
but the impact on nonfarm jobs varies considerably by region and
depends on underlying assumptions.
Based on market conditions in 2000, only about half of the land
enrolled in CRP would be expected to return to crop production in
the short term if CRP contracts expired. The remainder would likely
go into pasture or be left undisturbed. Holding prices constant,
roughly $3 billion in additional farm commodities could be produced
on CRP land coming back into production. (However, the resulting
increase in crop production could lower affected farm commodity
prices slightly, resulting in a net decline in farm income nationwide.)
Of course, the environmental benefits attributed to CRP would likely
decline as land reenters production. For example, as wildlife habitat
degrades and water quality deteriorates, outdoor recreational expenditures
in rural America could decline by as much as $300 million annually.
As these CRP-induced changes in production and spending work their
way through the economy, nonfarm jobs would be created or lost.
Land brought back into production would increase local demand for
farm-related goods and services (farm inputs, labor, marketing and
transportation services, etc.), leading to job growth in these industries.
But reduced outdoor recreational spending could lead to job losses
in other industries. And as income is redistributed from farm households
to other sectors of the economy, shifting demand for consumer goods
and services could lead to other job changes as well. Each of these
changes affects production, income, and consumption.
Nationally, the economic effects of allowing CRP land to return
to production are expected to be very small (less than one-tenth
of 1 percent), with positive and negative effects within particular
industries and regions largely canceling each other out. But the
effects could be noticeable in areas of the country where CRP enrollment
is high. By focusing on possible output, employment, and income
effects in three regions having significant CRP enrollments, the
regional implications of allowing all CRP contracts to expire become
clearer.
ERS researchers assessed the implications of allowing CRP contracts
to expire using two sets of assumptions. In the traditional approach,
CRP enrollment is assumed to have no influence on outdoor recreational
expenditures or farm commodity prices. A newer approach developed
by ERS allows CRP enrollments to influence recreational spending
and commodity prices, both of which tend to counter CRP’s
impact on farm output and employment with opposite changes in nonfarm
output and employment. As a result, the upper bound of the predicted
impacts from allowing CRP land back into production (based on traditional
assumptions) is often positive while the lower bound (reflecting
recreational and price effects) is often negative.
The Northern Plains and the Southern Plains regions, as defined
here, each have slightly more than 8 million acres of cropland enrolled
in CRP, while enrollment in the southwestern Corn Belt is less than
2 million acres. Despite similar CRP acreage, the expected outcomes
of eliminating CRP contracts in the Northern and Southern Plains
are very different. The Northern Plains is more geographically isolated,
has a lower population density, and is more dependent on agriculture
than the other two regions. As a result, the output, employment,
and household income responses to allowing CRP land to return to
production in the Northern Plains are estimated to be roughly three
times greater (in terms of percentage change under both sets of
assumptions) than in the Southern Plains. Part of these differences
is due to the larger dollar size of the economy in the Southern
Plains. However, when impacts are measured in absolute rather than
percentage changes, the responses in the Northern Plains are still
twice the size of the those in the Southern Plains. This suggests
that CRP’s impact on local economies is sensitive to local
conditions.
In addition, there are likely to be winners and losers within
local economies. While aggregate output and jobs are estimated to
increase at least slightly in all three regions if CRP contracts
expired under both sets of assumptions, this outcome is largely
due to gains in the farm sector. However, if commodity prices and
recreational expenditures are allowed to adjust, nonfarm output
and employment are estimated to decline if CRP contracts expired,
as would aggregate household income.
CRP’s Job Impacts Fade With Time
Previous results imply that farm and farm-related employment and
output are lower than they would be in CRP’s absence. But
CRP’s impact on the nonfarm economies of the three multistate
regions analyzed appears small (never over 1.5 percent) and may
be positive or negative, depending upon assumptions about recreational
spending and commodity prices.
Another approach to estimating CRP’s local economic impacts
is to examine what actually happened before and after CRP was implemented
in 1986. Doing so illustrates how local businesses and entrepreneurs
reacted to changing economic opportunities as land entered the CRP.
To assess the local impact of high CRP enrollment, roughly 200
rural counties with over 20 percent of cropland enrolled in the
CRP or where the ratio of CRP rental payments to total county household
income exceeded 2.75 percent were identified. These “high-CRP”
counties were then matched with counties that had little CRP enrollment
but had similar pre-CRP socioeconomic conditions. By charting the
economic course of high- and matching low-CRP counties following
CRP’s implementation, any systematic effect of high CRP enrollment
should become clear.
The results generally confirm previous analyses. In the years immediately
after land was enrolled in the CRP, job growth in high-CRP counties
was significantly lower than in comparable low-CRP counties. However,
job growth is indistinguishable over the longer term (1985-2000).
Either entrepreneurs were able to adapt to the changing opportunities
that CRP offered (such as improved recreational opportunities) with
time or CRP merely sped up economic adjustments that other rural
communities experienced more gradually. In either case, CRP’s
impact on local trends in job growth was not permanent.
One might expect land retirement programs to affect communities
that serve as regional agricultural business service centers more
than other communities. Population density was used as a proxy for
whether a county is likely to include one or more agricultural service
centers. For low-density counties (fewer than two persons per square
mile), CRP made little difference in job growth over the short term
and may have had a positive impact over the longer term (perhaps
by keeping farmer participants in place who might otherwise have
moved elsewhere as the farm sector continued its consolidation).
For counties with slightly higher population densities (over nine
persons per square mile), the pattern was very different. In the
short term, high-CRP enrollment led to a nearly 4-percent decline
in job growth. But over time, this discrepancy dissipated.
Together, the forward-looking economic impact simulations of CRP
contract expirations and the backward-looking comparison of pre-
and post-CRP economic trends suggest that, as farmland is taken
out of production, job growth in high-CRP areas could initially
suffer. However, these impacts appear to be temporary, and they
vary widely depending on local economic conditions. In lightly populated
areas, high CRP enrollment could support local job growth over the
long term by helping program participants stay on their farms. In
other areas, CRP’s impact on farm-related industries is severe
enough to significantly slow total job growth or speed its decline
over the short term. But even in these areas, job growth rebounds
over the long term as growth in other industries replaces jobs lost
by farm-related firms.
CRP Does Not Accelerate Population Loss
CRP is particularly popular in areas of the country that have long
been prone to population loss. That observation, combined with CRP’s
impact on farm-related employment and the belief that retired participants
move elsewhere after enrolling their entire farms in the program,
has led many to argue that high CRP enrollments can lead to depopulation,
threatening the survival of nearby communities. It is commonly suggested
that CRP could exacerbate rural population loss by allowing participants
to take their farms out of production and move out of farming communities,
thereby eliminating farm jobs and both farm-related and consumer
service jobs in nearby communities.
Absentee landownership (as measured by the outflow of CRP funds
from counties where farmland is enrolled) tends to be highest in
high-CRP areas of the country. Using ERS’s
farm resource regions, the Northern Great Plains, the Prairie
Gateway, and the Mississippi Portal all lost 10 percent or more
of the 2001 payments earned on their CRP land to enrollees residing
elsewhere. But CRP participants seem to be vacating rural areas
no more than other farmers. The distribution of CRP payments among
counties classified by degree of urbanization is very similar to
the distribution of commodity payments for the corn, cotton, and
wheat programs. Thus, payment flows more likely reflect pre-existing
landownership patterns than residential relocation by CRP participants.
Further analysis suggests that while the number of farms is declining
nationwide, counties with high CRP enrollment had no more trouble
attracting beginning farmers or retaining farm operators than did
low-CRP counties with similar farm sectors. Thus, even high CRP
enrollment does not systematically spur the loss of farm populations.
Finally, many counties with high CRP enrollment have experienced
population loss since the program’s inception. However, the
data also show that high-CRP counties were experiencing depopulation
long before CRP’s implementation in 1986. This suggests that
the program may be particularly attractive in areas that are struggling,
perhaps because of a lack of off-farm employment opportunities or
limited demand for cropland that would be leased or sold to other
farm operators in the absence of CRP. But, does CRP exacerbate population
problems?
Comparing population trends in high-CRP counties with trends in
similar counties having little CRP enrollment highlights the lack
of systematic differences that might be attributable to CRP. Once
other factors—such as low population density, isolation from
urban centers, and dependence on agriculture—are taken into
account, CRP has no statistically significant effect on population
trends over either the short or the long term. There may be specific
cases where CRP enrollment had a positive or negative effect on
population, but in general, CRP enrollment is unrelated to underlying
population trends.
CRP and Farm Communities
CRP is approaching its 20th year of operation. From its inception,
concerns have been raised that by retiring millions of acres of
cropland, the program could disadvantage farming communities already
hard hit by farm sector consolidation and globalization. Clearly
the CRP does not benefit everyone, and the conservation benefits
enjoyed by society may come at the expense of a few industries and
regions. Nonethe-less, results of ERS analyses suggest that CRP
does not come at the expense of longrun economic growth in nearby
communities. Even high levels of CRP enrollment have only a modest
impact on total county employment, and this impact is relatively
short lived. ERS simulations suggest that, in the longer term, CRP
enrollment may increase local nonfarm output and employment, and
bolster household income if the program increases farm commodity
prices and improves recreational opportunities. No statistically
significant evidence was found that high CRP enrollments were associated
with systematic population declines at the county level.
This article is drawn from...
The Conservation
Reserve Program: Economic Implications for Rural America,
by Patrick Sullivan, Daniel Hellerstein, LeRoy Hansen, Robert Johannson,
Steven Koenig, Ruben Lubowski, William McBride, David McGranahan,
Michael Roberts, Stephen Vogel, and Shawn Bucholtz, AER-834, USDA/ERS,
November 2004.
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