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Leveraging Large Existing Federal Programs to Induce the Adoption of Climate Smart Conservation Practices

Paper Session

Friday, Jan. 6, 2023 10:15 AM - 12:15 PM (CST)

New Orleans Marriott
Hosted By: Agricultural and Applied Economics Association
  • Chair: Hongli Feng, Iowa State University

Farm Heterogeneity and Leveraging Federal Crop Insurance for Conversation Practice Adoption

Jennifer Ifft
,
Kansas State University
Margaret Jodlowski
,
Ohio State University

Abstract

Leveraging existing Federal policies to target conservation policies rests on the assumptions that
(1) farms that use these policies would respond to additional incentives and (2) that the farms
that do respond to additional incentives are the ones that can provide additional “environmental
benefits”. In this study, we analyze the relationship between crop insurance use and farm level
production practices and a novel measure of environmental impact of farms. We provide
evidence that (a) understanding heterogeneity of program participants is key in the success of
leveraging existing policies for conservation adoption and (b) producers that intensively use
Federal crop insurance are more likely to have already adopted conservation practices that also
can improve long-run profitability, such as variable rate application or no-till or crop scouting.
Our analysis is conducted from nationally representative field and farm level data collected in the
Agricultural Resource Management Survey (ARMS) Phase II, for major field crops (crop, soybeans, wheat). We first use an unsupervised machine learning method (factor analysis) to
assess the degree of complementarity between a diverse group of production decisions, including
chemical input use rates. We then develop a novel approach to measure nitrogen (N) balance, a
yield-scaled measure of nitrogen fertilizer’s environmental impact. Using these sets of practices,
we then estimate the relationship between sustainable production practices and crop insurance
use intensity (coverage levels). Conservation practices (and related production practices) that
have strong evidence of being profit maximizing are much more likely to be used by producers
with high crop insurance coverage levels.

Cover Crops, Farm Economics, and Policy

Gary Schnitkey
,
University of Illinois-Urbana-Champaign
Sarah Sellars
,
University of Illinois-Urbana-Champaign
Laura Gentry
,
Illinois Corn Growers Association

Abstract

Cover crops have many environmental benefits. For example, cover crops can significantly
reduce nitrate leaching from fields in grain production systems by scavenging residual nitrogen
from fields. Moreover, cover crops are hypothesized to have significant soil health benefits,
including building organic matter over time and reducing soil loss from fields. Cover crops are
often identified as increasing the sequestering carbon in soils over time. Yet, farmers often do
not receive enough benefits to warrant the planting of cover crops, particularly when farmers
first begin planting cover crops and gain experience with a new and very different system.
Therefore, public policies that support cover crops may be justified given the public benefits
from cover crops. Herein, we will discuss some methods to provide public support for cover
crops, including direct subsidies for planting cover crops and providing insurance benefits for
cover crops. Overall, direct subsidies likely are the most efficient ways of providing support and
may only need to be temporary as individuals gain experience with cover crops.

Mitigating Climate Change with the Conservation Reserve Program in the United States: The Role of Program Redesign

Brian Cornish
,
Auburn University
Ruiqing Miao
,
Auburn University
Daniel Hellerstein
,
USDA Economic Research Service
Andrew Rosenberg
,
USDA Economic Research Service

Abstract

As the United States has re-joined the Paris Agreement on climate change with ambitious goal
for mitigating greenhouse gas (GHG) emissions, the potential contribution of agriculture to
reaching the climate goals has attracted much attention. The Conservation Reserve Program
(CRP) in the United States, one of the world’s largest voluntary conservation programs with 22
million acres of land enrolled as of March 2022, is expected to enhance the ability of U.S.
agriculture to mitigate climate change. The CRP has been responding to this expectation. For
example, the Farm Service Agency, administrating the CRP, recently provided up to a 10 percent
increase in rental payments for CRP parcels that adopt climate smart practices (e.g.,
establishment of permanent grasses). However, many questions regarding the effectiveness of
CRP mitigating GHG emissions remain. This paper examines how the CRP enrollment
mechanism can be further improved so that the program can produce larger carbon benefits.
Specifically, based on the administrative data for 56,788 offers of signups 54 and 56 that
occurred over 2019-2021, this paper studies the impact of different CRP enrollment mechanism
redesigns (including varying the weight assigned to carbon benefits when screening land offers)
on the program enrollment outcomes such as carbon benefits, other environmental benefits, CRP
acreage, and program cost-effectiveness. We also compare the CRP’s cost effectiveness of
carbon sequestration through increasing program payment for adopting carbon smart practices with that through redesigning the enrollment mechanism. The study is innovative because it is
the first a) to comprehensively examine how the CRP enrollment mechanism could be
redesigned to enhance the program’s impact on greenhouse gas reduction, and b) to compare the
cost-effectiveness of these redesigns with that of directly increasing program payment for
adopting carbon smart practices without out any enrollment mechanism redesigns.

Modelling Growers' SNA Decisions and Evaluating the Economic and Environmental Outcomes of PACE

Hongli Feng
,
Iowa State University
David Hennessy
,
Iowa State University
Daniel Andersen
,
Iowa State University
Michael Castellano
,
Iowa State University

Abstract

Farmers’ fertilizer input decisions are key in crop production and have substantial environmental
implications. This study evaluates the tradeoffs faced by corn growers for adopting an
environmentally friendly nitrogen (N) application strategy, the split N application (SNA), as well
as model growers’ SNA decisions. Instead of applying all N in a single pass during the preceding
fall or in spring before planting, SNA applies some N before planting and the rest throughout
corn growth phases as needed and when conditions permit. By synchronizing fertilizer additions
with plant uptake needs, SNA can reduce N loss and potentially increase crop yields. However,
successful N application after planting depends on weather and field conditions. Fluctuating
fertilizer prices and application resource availabilities to apply N as needed post-planting may
also deter SNA adoption. These risks may lead farmers’ SNA adoption rates to lag the socially
optimal level. We identify the divergence between the socially optimal SNA strategy and the
approach most likely to secure the best economic returns for the grower. Based on these
understandings, we evaluate policy alternatives aimed at promoting SNA adoption with specific
reference to a new USDA crop insurance program, the Post Application Coverage Endorsement
(PACE). PACE indemnifies SNA adopters when post-planting N application is prevented due to
unfavorable weather conditions and thus helps growers manage weather risks associated with
SNA. Our study assesses the economic and environmental consequences of the PACE
opportunity and compare growers’ optimal SNA strategies under PACE with the socially optimal
SNA strategy. Initial evidence suggests that PACE as currently implemented is unlikely to
induce significant SNA adoption.

Discussant(s)
Wndiam Sawadgo
,
Auburn University
JEL Classifications
  • Q5 - Environmental Economics