United States Government Accountability Office

GAO Report to Congressional Requesters

AGRICULTURAL 

CONSERVATION 

Farm Program 

Payments Are an 

Important Factor in 

Landowners’ 

Decisions to Convert 

Grassland to Cropland

September 2007 

 

GAO-07-1054 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

September 2007

AGRICULTURAL CONSERVATION

Farm Program Payments Are an 

Important Factor in Landowners’ 

Decisions to Convert Grassland to 

Cropland 

Highlights of GAO-07-1054, a report to 

congressional requesters 

The nation’s remaining grassland 

has several important benefits, 

such as providing land for grazing

and wildlife habitat for many atrisk species. However, over the 

past 3 centuries about half of the 

grassland has been converted to

other uses, principally cropland. In 

addition to losing important 

grassland values, such conversions 

may result in increased spending 

on federal farm programs, such as

crop insurance, especially in

marginal areas. GAO examined (1)

the extent of grassland conversions 

to cropland and the cost of farm 

program payments for these newly 

converted cropland acres; (2) the

relative importance of farm 

program payments versus other 

factors in producers’ decisions to 

convert grassland to cropland; and 

(3) any impact the Sodbuster 

conservation provision—which 

places soil erosion standards on

certain converted land—has had on

limiting grassland conversions.

What GAO Recommends

GAO recommends that the U.S.

Department of Agriculture (USDA) 

(1) track the annual conversion of

native grassland to cropland to 

provide policymakers with more

comprehensive and current

information on such conversions 

and (2) study the extent to which

farm program payments and 

conservation programs may be

working at cross purposes and

report findings to the Congress. 

USDA agreed with GAO’s findings

and recommendations. 

No comprehensive and current source of information exists on the 

conversion of grassland to cropland or on the resulting farm program 

payments for newly converted land. However, the data that are available 

show a decline in private grassland nationwide, continuing conversion of 

native grassland to cropland in some areas of the country, and that certain 

farm program payments made to producers in South Dakota counties with 

relatively high rates of conversion were significantly higher than payments in 

other counties. According to USDA’s National Resources Inventory, the 

nation’s privately owned grassland decreased by almost 25 million acres

between 1982 and 2003. While some conversions are attributable to 

development and other land uses, the leading type of conversion has been to 

cropland. Our analysis of South Dakota counties found that between 1997 

and 2006, the average annual net crop insurance payment per acre for the 16 

counties with the highest rates of conversion was nearly twice as high as the 

average payment for all other counties in the state. 

Farm program payments are an important factor in producers’ decisions on 

whether to convert grassland to cropland. Certainly other factors, including 

rising crop prices—largely spurred by increased ethanol demand—and the 

emergence of genetically modified crops and new farming techniques that 

make cropping on heretofore unsuitable land possible are also important in 

producers’ decisions. Specifically, our analysis found that farm program 

payments are an important factor in conversions. Several economic studies

have reached the same conclusion. For example, a 2006 USDA study found 

that increases in crop insurance subsidies motivated producers to expand 

cropland in the contiguous 48 states by an estimated 2.5 million acres in the 

mid-1990s. Moreover, farm program payments and conservation programs 

may be working at cross purposes with one another. For example, from 

1982 to 1997, 1.69 million acres of cropland in South Dakota were enrolled in 

the Conservation Reserve Program, while during the same period, 1.82 

million acres of grassland in South Dakota were converted to cropland. 

The Sodbuster conservation provision has had little impact on conversions. 

For certain cropland converted from native grassland and classified as

highly erodible, Sodbuster requires that producers apply a soil conservation 

system that does not allow a substantial increase in erosion as a condition to 

receiving certain farm program payments. However, much of the native 

grassland converted in recent years is not highly erodible and therefore is 

not subject to Sodbuster. In addition, according to county-level USDA 

officials, the cost of controlling soil erosion relative to potential profits from 

cultivating the land provides little disincentive to conversion. USDA has 

proposed legislation to make newly converted native grassland ineligible for 

program benefits. www.gao.gov/cgi-bin/getrpt?GAO-07-1054.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Lisa Shames at 

(202) 512-3841 or shamesl@gao.gov. 
Contents 

Letter 1

Results in Brief 3 

Background 6

Available Data Show Conversion of Native Grassland to Cropland 

Continues and These Conversions Add to Farm Program Costs 12 

Farm Program Payments, Rising Crop Prices, and the Adoption of 

New Farming Technologies Provide Incentives to Expand Crop 

Production on Native Grasslands 20 

Sodbuster Has Had Little Impact on Native Grassland Conversions 26 

Conclusions 30

Recommendations for Executive Action 30 

Agency Comments and Our Evaluation 31 

Appendix I Objectives, Scope, and Methodology 33 

Appendix II National Resources Inventory Data on Net Changes 

in U.S. Land Use, 1982-2003 37 

Appendix III Census of Agriculture Data on Net Changes in 

Uses of Land in Farms for the United States and 

Selected States 39 

Appendix IV Partial Budget Analysis for a Proposed Conversion 

of Native Grassland to Cropland in Central South 

Dakota, 2003-2007 43 

Appendix V Summaries of Economic Studies Examining the 

Impact of Farm Program Payments 58 

Appendix VI GAO Contact and Staff Acknowledgments 63 

Page i GAO-07-1054 Agricultural Conservation
Related GAO Products 64 

Tables 

Table 1: Conversions of Rangeland and Pastureland to Cropland in 

Selected Crop Production Regions, 1982-1997 and 1997-

2003 14 

Table 2: Conversions of Grassland That Had No Prior Cropping 

History to Cropland in Montana, North Dakota, and South 

Dakota, 2005 and 2006 15

Table 3: Comparison of Net Crop Insurance Payments in South 

Dakota for the 16 Highest Conversion Counties versus 

Other Counties 18 

Table 4: Comparison of Crop Disaster Assistance Payments in

South Dakota for the 16 Highest Conversion Counties 

versus Other Counties 19 

Table 5: Estimated Net Change in Income for a Shift to Crop 

Production from a Cow-Calf Grazing Operation on a 160-

Acre Tract in Central South Dakota, 2003-2007 23 

Table 6: Local NRCS Officials’ Responses to GAO Survey Question 

on the Effectiveness of Sodbuster in Limiting the 

Conversion of Native Grassland to Cropland 27 

Table 7: Net Changes in Rangeland, Pastureland, and Other Land 

Types, 1982-2003 38 

Table 8: Net Changes in Uses of Land in U.S. Farms, 1978-1992 and 

1997-2002 40

Table 9: Net Changes in Uses of Land in Farms in States with Large 

Amounts of Rangeland and Pastureland, 1978-1992 and 

1997-2002 40

Table 10: Partial Budget Analysis for a Proposed 2003 Change from 

a Cow-Calf Enterprise to a Corn/Soybean/Wheat Cropping 

Enterprise in Central South Dakota, 2003-2006 50 

Table 11: Partial Budget Analysis for a Proposed 2003 Change from 

a Cow-Calf Enterprise to a Corn/Soybean/Wheat Cropping 

Enterprise in Central South Dakota, 2007 56 

Table 12: Economic Studies That Analyze the Impact of Federal 

Farm Program Payments on Either Producers’ Land Use 

Decisions or Farm Profitability and Risk 58 

Page ii GAO-07-1054 Agricultural Conservation
Figures 

Figure 1: U.S. Grasslands before European Settlement 7 

Figure 2: Process to Determine Sodbuster’s Applicability 11 

Abbreviations 

CRP Conservation Reserve Program 

ERS Economic Research Service 

FSA Farm Service Agency

FWS U.S. Fish and Wildlife Service 

HEL highly erodible land 

NASS National Agricultural Statistics Service 

NRCS Natural Resources Conservation Service 

NRI National Resources Inventory 

RMA Risk Management Agency 

USDA U.S. Department of Agriculture 

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Page iii GAO-07-1054 Agricultural Conservation
United States Government Accountability Office

Washington, DC 20548 

September 10, 2007 

The Honorable Tom Harkin 

Chairman 

Committee on Agriculture, Nutrition, 

 and Forestry 

United States Senate 

The Honorable Collin C. Peterson 

Chairman 

Committee on Agriculture 

House of Representatives 

Before the European settlement of North America, grasslands occupied 

approximately 1 billion acres of the contiguous United States––about half

of the land––mostly west of the Mississippi River. Over the last 3 centuries, 

about half of this presettlement, or “native,” grassland was converted to 

other uses, and in some states, such as Iowa, almost all the native 

grassland has been converted. The most common use to which grassland 

has been converted is cropland for the production of crops such as corn

and wheat.1

 This cropland produces food, feed, and fiber––and now, with 

the rising demand for ethanol and other renewable fuels, energy––and can 

yield relatively high financial returns to landowners and agricultural 

producers. However, grassland is also a valuable resource, providing land 

for livestock grazing; recreational opportunities, such as hunting and 

fishing; and environmental benefits, such as reducing soil erosion, 

improving water quality, increasing carbon sequestration, and providing 

wildlife habitat. In particular, some grassland provides habitat for 

threatened and endangered and other at-risk species. Converting grassland

to cropland reduces or eliminates these benefits, and can result in 

additional spending on federal farm programs. Wildlife, environmental, 

and conservation groups, as well as certain cattle industry interests, have 

 1

According to U.S. Department of Agriculture’s (USDA) National Resources Inventory, 

cropland includes areas used for the production of adapted crops for harvest; rangeland is

composed principally of native grasses or other native vegetation suitable for grazing; and 

pastureland is land that is managed for introduced forage plants for grazing. The USDA 

definitions of cropland, rangeland, and pastureland are discussed in appendix II. For the

purposes of this report, native grassland generally refers to rangeland unless otherwise 

specified. 

Page 1 GAO-07-1054 Agricultural Conservation
expressed concerns that the financial incentives these farm programs 

provide are a significant factor in landowner decisions to convert 

grassland to cropland. 

The federal farm programs include a variety of income and price support 

programs for specific commodities, such as corn, soybeans, and wheat; 

crop insurance; and ad hoc disaster assistance programs. For the purposes 

of this report, farm program “payments” include commodity-related 

payments, crop insurance subsidies, and other benefits. The U.S. 

Department of Agriculture (USDA) administers the farm programs. In 

recent years, farm program payments have averaged about $20 billion 

annually. 

The conservation compliance provisions of the Food Security Act of 1985,

as amended, condition the receipt of farm program payments on a 

producer’s efforts to control soil erosion on highly erodible land and 

protect wetlands. One of these provisions, known as Sodbuster, requires 

producers to apply a soil conservation system that does not allow a 

substantial increase in soil erosion on land converted from native 

grassland if the land was not cropped before December 23, 1985, and was 

determined by USDA to be highly erodible land. In addition, USDA 

conservation programs provide financial incentives for taking

conservation actions on working land or for retiring it from production. 

Several of these programs, including the Grassland Reserve Program and 

Conservation Reserve Program (CRP), promote the conservation of 

grassland. Under the Grassland Reserve Program, USDA offers easements 

and rental agreements to landowners to assist them in protecting, 

conserving, and restoring eligible grassland—such as important habitat for 

wildlife. Under CRP, USDA provides about $1.8 billion in annual rental 

payments to landowners to retire environmentally sensitive cropland from 

production and establish permanent vegetative cover on this land. 

In November 2006, we identified the need for better oversight of farm 

program payments.2

 We specifically highlighted that USDA support 

programs may have unintended consequences, including incentives for 

producers to grow crops on land prone to drought or erosion. Without 

better oversight to ensure that farm program funds are spent as 

economically, efficiently, and effectively as possible, we pointed out that 

 2

GAO, Suggested Areas for Oversight for the 110th Congress, GAO-07-235R (Washington,

D.C.: Nov. 17, 2006). 

Page 2 GAO-07-1054 Agricultural Conservation
USDA has little assurance that these funds benefit the agricultural sector 

as intended.

In this context, you asked us to determine (1) the extent of grassland 

conversions to cropland, and the cost of farm program payments related to

these newly converted cropland acres; (2) the relative importance of farm 

program payments versus other factors in producers’ decisions to convert 

grassland to cropland; and (3) any impact the Sodbuster provision has had

on limiting grassland conversions. 

In conducting our work, we spoke with and reviewed documents provided 

by officials in USDA headquarters and field locations; the U.S. Fish and 

Wildlife Service (FWS); farm, wildlife, conservation, and environmental 

organizations; state governments; and land grant universities. To 

determine the extent of grassland conversions to cropland, we examined 

land use data from (1) USDA’s National Resources Inventory; (2) USDA’s 

Census of Agriculture; (3) USDA state offices in Montana, North Dakota,

and South Dakota; and (4) a collaborative study by Ducks Unlimited, Inc., 

a private advocacy group supporting the protection and restoration of 

wetlands and waterfowl habitat, in conjunction with FWS; the South 

Dakota Department of Game, Fish and Parks; The Nature Conservancy; 

and the University of Montana. We also reviewed other relevant studies of 

grassland conversions to cropland. To determine the cost of farm program 

payments on converted land, we analyzed USDA data on crop insurance 

and disaster assistance payments. To determine the relative importance of 

the availability of farm program payments in producers’ decisions to 

convert grassland to cropland, we analyzed payments per cropland acre in

counties with relatively high conversion rates of grassland to cropland. We 

also analyzed farm-level financial information for a South Dakota county 

that has had numerous conversions. To determine the impact the 

Sodbuster provision has had on grassland conversions, we examined 

USDA land use data and conducted interviews with USDA field officials in

selected counties with relatively high rates of conversions in Montana, 

Nebraska, North Dakota, and South Dakota to obtain their views of the 

impact of Sodbuster on conversion decisions. A more detailed description 

of our scope and methodology is presented in appendix I. We performed 

our work between October 2006 and August 2007 in accordance with 

generally accepted government auditing standards. 

No comprehensive and current source of information exists on the extent 

of grassland conversions to cropland or the amount of farm program 

payments related to this newly converted cropland. As a result, 

Results in Brief 

Page 3 GAO-07-1054 Agricultural Conservation
policymakers do not have current information on the extent of

conversions for all areas where conversions may have occurred in recent 

years. Although limited, available data show a decline in private grassland 

nationwide and continuing conversion of native grassland to cropland in 

some areas of the country––particularly the Northern Plains––and that 

these conversions have added to farm program costs. For example, 

USDA’s National Resources Inventory data indicate that the nation’s 

private grassland decreased by almost 25 million acres from 1982 through 

2003. While some conversions are attributable to development and other

land uses, the leading type of conversion has been to cropland. Our 

analysis found that crop insurance payments to producers were 

significantly higher per acre in South Dakota counties with relatively high 

rates of conversion, adding to program costs. For example, from 1997 

through 2006, the 16 South Dakota counties with the highest number of 

grassland conversions to cropland had an average annual net crop 

insurance payment of over $13 per acre, while the average payment for all 

other South Dakota counties was less than $7 per acre. According to 

USDA officials, this difference may be explained by the fact that the 

counties with the highest number of conversions are in areas of the state 

that are more prone to drought and crop losses. 

Farm program payments are an important factor in producers’ decisions to

convert grassland to cropland, but rising crop prices and new farming 

technologies are also important factors in these conversions. From 

September 2006 to January 2007, the price of corn increased by over 66 

percent, largely because of the growing demand for ethanol, a corn-based 

renewable fuel. This demand is expected to continue to increase, and corn 

prices are expected to be relatively high for several years. Genetically

modified crops, such as herbicide-resistant soybeans, as well as new 

farming techniques, such as no-till planting, contribute to conversion 

decisions as well. These developments have increased the profitability of 

crop production in some areas that heretofore were considered marginally

suitable or generally unsuitable for crop production. Our analysis of the 

economic effects on a farm, if it were to convert native grassland from 

grazing to cropping, showed increased income in 3 of the 5 years covered 

from 2003 through 2007. Without farm program payments, income would 

have increased only in 1 year. Other studies have confirmed a relationship 

between farm program payments and conversions. The studies we 

reviewed generally found that farm program payments provide significant 

incentive to convert grassland to cropland because they increased the 

expected profitability of farming while lowering the associated risks. For 

example, a 2006 USDA study found that increases in crop insurance 

subsidies motivated producers to expand cropland in the contiguous 48 

Page 4 GAO-07-1054 Agricultural Conservation
states by an estimated 2.5 million acres in the mid-1990s. Moreover, farm 

program payments may work at cross purposes with payments made 

under conservation programs intended to protect grassland or to convert 

cropland to grassland or another conserving use. For example, between 

1982 and 1997, 1.69 million acres of cropland in South Dakota were 

enrolled in the CRP, which provides incentives to farmers to convert 

cropland to grassland, at a cost to the government of about $633 million. 

However, during the same period, 1.82 million acres of grassland in South 

Dakota were converted to cropland.

Sodbuster has had little impact on slowing grassland conversions because, 

in part, much of the converted native grassland in recent years has not 

been subject to the Sodbuster provision, which applies only to highly 

erodible land. For example, according to USDA’s National Resources 

Inventory, an estimated 59 percent of the rangeland converted to cropland 

between 1997 and 2003 in the Northern Plains was classified as non-highly 

erodible and therefore was not subject to the Sodbuster provision. 

Similarly, in reviewing records for selected high conversion counties in 

Nebraska, we found that over half of the land parcels converted from 2003 

through 2006 were classified as non-highly erodible. Even when converted 

grassland is classified as highly erodible and subject to Sodbuster, the 

potential profits from cropping the land usually outweigh the perceived 

costs associated with controlling soil erosion. According to USDA 

officials, the cost of implementing and maintaining the conservation 

practices needed to comply with Sodbuster’s soil erosion control 

standards generally does little to discourage conversions, especially when 

the price of corn and other crops is high. Further, these officials said that 

new technology such as herbicide-resistant crops and no-till planting has 

reduced the cost of complying with Sodbuster and made farming highly 

erodible land economically feasible. For the 2007 farm bill, USDA has 

offered a proposal known as Sod Saver that, according to USDA, would 

discourage further grassland conversion. In proposing Sod Saver, USDA 

recognized that properly managed grasslands provide environmental 

benefits such as the protection of wildlife habitat. Under this proposal, 

certain grassland—specifically rangeland and native grassland not 

cropped for the 6 years preceding the effective date of the 2007 farm bill—

converted to cropland would be permanently ineligible for farm program 

payments. The Sod Saver proposal is generally supported by wildlife, 

environmental, and conservation groups, as well as certain cattle industry 

interests. However, several farm, crop, and livestock organizations 

maintain that the proposal would reduce the amount of farmable land 

available for beginning farmers, and would constrain farmers’ ability to 

Page 5 GAO-07-1054 Agricultural Conservation
adapt to changing market conditions related to the growing demand for 

crops to produce food and renewable fuels. 

In light of these findings, we are recommending that USDA (1) track 

annually native grassland conversion to cropland to develop a 

comprehensive and current source of information in those geographic 

areas where such conversions can occur and (2) study the extent to which

farm program payments and conservation programs, such as the CRP, may 

be working at cross purposes and report its findings to the Secretary of 

Agriculture and the Congress. 

We provided a draft of this report to USDA for review and comment. 

USDA provided oral comments through the Chief, NRCS, on September 5, 

2007, indicating general agreement with the report’s findings and 

recommendations. USDA also said it wanted to ensure that GAO was 

aware that with few exceptions, the crop insurance program has strict 

criteria on where converted land may be insured. Although USDA has 

these criteria, our work found that it does not have a method and the 

information needed to enforce them. USDA also provided us with 

suggested technical corrections, which we incorporated into this report as 

appropriate.

Before the European settlement of North America, grasslands occupied 

approximately 1 billion acres of the contiguous United States—about half

of the land—mostly west of the Mississippi River, as shown in figure 1. 

Background 

Page 6 GAO-07-1054 Agricultural Conservation
Figure 1: U.S. Grasslands before European Settlement 

Source: Richard Conner, Andrew Siedl, Larry Van Tassel, and Neill Wilkins. "United States Grasslands and Related Resources:

An Economic and Biological Trends Assessment," (2001). http://landinfo.tamu.edu/presentations/grasslands.html (Downloaded

January 31, 2007).

Presettlement grasslands

WA

OR ID

MT ND

NE

KS

OK

TX

IA

IL

MO

MN

SD WI

WY

CO

UT

NV

CA

AZ NM

Over the last 3 centuries, about half of this presettlement, or “native,” 

grassland was converted to other uses, and almost all the native grassland 

has been converted in some states, such as Iowa and Minnesota. While 

most of the existing privately owned grasslands are between the 

Mississippi River and the Rocky Mountains, the grasslands west of the 

Rocky Mountains are largely under federal management. 

The land uses to which native grasslands have been converted include 

pastureland, developed land, and cropland. Historically, cropland—land 

Page 7 GAO-07-1054 Agricultural Conservation
used for the production of crops such as corn and wheat—has been the 

most common use to which native grassland has been converted. 

Cropland—which produces food, feed, fiber, and now energy, especially

ethanol—can yield relatively high financial returns to crop producers and 

landowners, and these returns generally increase economic activity in 

rural communities. In 2006, the value of U.S. crop production was $121 

billion (43 percent of the value of U.S. agricultural production). As the 

United States shifts to more renewable fuels, increasing amounts of crops, 

especially corn, are being used to produce energy. The use of corn to 

produce ethanol is projected to double between 2006 and 2008 and 

continue to increase rapidly for several years. Furthermore, crop exports 

contribute to the U.S. balance of trade. The United States is the world’s 

leading exporter of several major crops including corn, cotton, soybeans,

and wheat. Finally, crop production contributes to local economies in 

rural counties, affecting demand for farm inputs—seed, fertilizer, 

pesticides, herbicides, farm machinery, and labor—as well as grain 

marketing and transportation companies. 

However, the grassland that cropland displaces also has many economic 

as well as environmental benefits. Grassland provides forage for grazing 

livestock; provides recreational opportunities, such as for hunting and 

fishing; reduces soil erosion; improves water quality; and aids carbon 

sequestration, which reduces the amount of carbon dioxide, a greenhouse 

gas, in the atmosphere. Although these benefits generally result from both 

pastureland and native grassland, those concerned about the continued 

loss of grassland have placed a very high priority on preserving the 

remaining native grassland for the following reasons: 

• Conservation of native grassland contributes to the maintenance of 

biological diversity. More specifically, native grassland provides habitat 

for wildlife and native species, including native grassland bird species, 

some of which are declining. The conversion of native grassland to other

uses, including introduced grasses, can change the structure and function 

of habitat such that it no longer supports native wildlife species. For 

example, the loss of native grassland in the Texas coastal prairie 

eliminated habitat that supported the Attwater’s prairie chicken, a 

federally endangered species native to this area. In addition, research in 

North Dakota by U. S. Geological Survey wildlife biologists found 

significantly higher counts of certain grassland bird species in native 

grassland than in other grassland. Furthermore, the fragmentation of 

remaining native grasslands may reduce their habitat value and result in 

them not being large enough to support their natural biodiversity. 

Page 8 GAO-07-1054 Agricultural Conservation
• Once converted, restoring native grassland is difficult and expensive, and 

it is questionable whether native habitat can ever be fully restored. In 

general, land that is converted back to native grassland does not regain the 

ecological function of undisturbed native grassland. Furthermore, FWS 

estimates that the cost of restoring native grassland in eastern South 

Dakota is about $200 per acre, a substantial amount relative to the 2006 

market value of native grassland in that area, which ranged from an 

average of $751 per acre in northeast South Dakota to $1,055 per acre in 

east central South Dakota. 

Federal farm programs provide payments that can increase the 

profitability of crop production and may create incentives for conversions. 

Among these programs are the federal crop insurance program, crop 

disaster assistance programs, and the marketing assistance loan program.3

The federal crop insurance program protects crop producers from 

production risks associated with adverse weather as well as price risks 

associated with commodity market fluctuations.4

 USDA’s Risk 

Management Agency (RMA) administers the program in partnership with 

private insurance companies, which share a percentage of the risk of loss 

and the opportunity for gain associated with each insurance policy 

written. RMA pays companies a percentage of the premium on policies 

sold to cover the administrative costs of selling and servicing these 

policies. In turn, insurance companies use this money to pay commissions 

to their agents, who sell the policies, and fees to adjusters when claims are 

filed. RMA absorbs a large percentage of the crop insurance program’s 

losses—the difference between premiums collected and indemnity 

payments5

—and subsidizes a portion of the premium paid by participating 

producers. 

 3

The marketing assistance loan program provides benefits to producers of major crops

when market prices are low. We did not analyze the cost of marketing assistance loan 

payments. According to spending forecasts, marketing assistance loan payments are 

predicted to be zero for corn, soybeans, and wheat through 2011 because prices of these 

crops are expected to be above the levels that trigger payments. 

4

Producers who grow a crop that is currently ineligible for crop insurance may be eligible 

for a direct payment under USDA’s Farm Service Agency’s Noninsured Assistance 

Program. 

5

Producers receive indemnity payments if they realize a qualifying crop loss under the crop 

insurance program. 

Page 9 GAO-07-1054 Agricultural Conservation
Crop disaster assistance programs—ad hoc programs enacted by the 

Congress and administered by USDA’s Farm Service Agency (FSA)—

provide payments to producers to compensate for losses sustained when 

planting is prevented or crop yields are abnormally low because of adverse

weather and related conditions. From 1998 through 2004, ad hoc disaster 

assistance legislation was enacted and crop disaster assistance payments 

were made for each crop year. These payments were made to both 

producers with crop insurance and those without insurance. A May 2007 

supplemental spending bill,6

 which authorized crop disaster assistance 

payments for crop year 2005, 2006, and 2007 losses, prohibited payments 

to a producer who either waived crop insurance or did not participate in

the Noninsured Assistance Program in the year of the loss. 

The conservation compliance provisions of the Food Security Act of 1985,7

as amended, condition the receipt of farm program payments on the 

producer’s efforts to control excessive soil erosion on highly erodible land

and protect wetlands. One of these provisions, known as Sodbuster, 

requires producers to apply a soil conservation system that meets the 

required level of protection that allows for no substantial increase in soil 

erosion on land converted from native vegetation if the land was not 

cropped before December 23, 1985, and is or was determined by USDA to 

be highly erodible land.8 A producer applying for certain farm program 

payments certifies with FSA that he or she will comply with conservation 

provisions. If the land in question was not cropped before December 23, 

1985, and USDA’s Natural Resources Conservation Service (NRCS) has not 

previously determined whether or not the land is highly erodible land, FSA 

refers the producer’s application to NRCS to conduct the determination. If 

NRCS determines, or has previously determined, that the land is highly 

erodible, Sodbuster applies and the producer must maintain a 

conservation system that will not permit a substantial increase in soil 

erosion. Under NRCS’s procedures, this producer must use a conservation 

system that controls erosion to a greater extent than is required for highly

 6

Pub. L. No. 110-28, tit. IX, § 9001, 121 Stat. 112 (2007). 

7

Pub. L. No. 99-198, 99 Stat. 1354 (1985) (codified as amended in scattered sections of titles 

7 and 16 of U.S.C.). 

8

The cropland must have been converted for use in producing annually tilled agricultural 

commodity crops in order to come under the protections provided by Sodbuster. 

Page 10 GAO-07-1054 Agricultural Conservation
erodible land that was cropped before December 23, 1985.9

 Figure 2 

illustrates when a landowner must apply a conservation system, as 

required by Sodbuster, to control erosion on newly converted cropland.

Figure 2: Process to Determine Sodbuster’s Applicability 

The producer can convert land into cropland

Producer, wishing to receive certain USDA benefits

and plant an agricultural commodity on land that has

not had a highly erodible land (HEL) determination,

informs FSA of his intentions.

FSA requests HEL determination from NRCS

Does the land

have a previous cropping

history?

Is land highly erodible?

Sodbuster does not apply:

 A conservation system is still required; the

conservation system must provide a substantial

reduction in soil erosion or a substantial improvement

in soil conditions.

Sodbuster does not apply; no conservation system is

needed.

Sodbuster applies:

 A conservation system must prevent a substantial

increase in erosion and hold soil erosion to no more

than the rate at which soil can maintain continued

productivity.

No

Yes

Yes

No

Source: GAO's analysis of USDA’s information; photo, U.S. Fish and Wildlife Service.

 9

A conservation system is a combination of one or more conservation practices that are 

approved by NRCS. These practices include structural measures, such as terraces, or 

management techniques, such as conservation tillage, used to enhance, protect, or manage 

natural resources, including soil. 

Page 11 GAO-07-1054 Agricultural Conservation
Over the last 25 years, some areas, particularly in the Northern Plains, 

experienced conversions of native grassland to cropland, and these 

conversions have added to farm program costs. While there is no 

comprehensive and current source of information on the extent of native 

grassland conversions to cropland or the amount of farm program 

payments made in relation to this newly converted cropland, available 

sources provide some information on conversions and related costs. 

Nationwide, total private grassland declined by almost 25 million acres 

from 1982 through 2003. In addition, conversions of native grassland to 

cropland continue in the Northern Plains, particularly in areas of North 

Dakota and South Dakota. Analysis of county-level data indicates that 

South Dakota counties with relatively high rates of conversions had high 

crop insurance and crop disaster assistance program costs. 

Available Data Show 

Conversion of Native 

Grassland to 

Cropland Continues, 

and These 

Conversions Add to 

Farm Program Costs 

Available Sources of 

Information Indicate That 

Grasslands Decreased, and 

Native Grassland 

Conversions to Cropland 

Were Highest in the 

Northern Plains 

Available information on the extent and location of grassland conversions 

to cropland is not comprehensive and current. For example, data on 

conversions of grassland to cropland are not available at the state or 

county level for the most recent years (except in three states––Montana, 

North Dakota, and South Dakota––where data are being collected on an 

informal basis to provide information to FWS and Ducks Unlimited on 

wildlife habitat loss). In addition, the most recent national and regional 

data are current only through 2003. As a result of these limitations, 

policymakers do not have current information on the extent of

conversions at relevant landscape levels for all areas across the country 

where conversions may have occurred in recent years. For example, 

except for the above three states, information is not available on 

conversions within local areas where further loss of native grassland may 

affect wildlife populations. Such information—particularly for native 

grasslands, which are difficult to restore—is important in assessing the 

need for and the results of policy changes. Moreover, among the available 

sources of grasslands data, differences in grassland definitions complicate 

characterization of conversions to cropland and trends in the amount of 

grasslands. Despite these limitations, available sources provide some 

information on conversions. Specifically: 

NRCS’s National Resources Inventory (NRI). The NRI is a periodic 

statistical survey of land use and natural resource conditions and trends 

on nonfederal lands.10 According to the NRI, from 1982 to 2003 in the 48

contiguous states, rangeland and pastureland declined by about 10.4 

 10All NRI numbers in this report are statistical estimates. 

Page 12 GAO-07-1054 Agricultural Conservation
million acres (about 2.5 percent) and 14.1 million acres (about 10.8 

percent), respectively, making the total decline in grassland about 24.5

million acres. Most of the decline in rangeland occurred between 1982 and 

1992. These net changes do not indicate the number of acres converted 

from rangeland and pastureland to cropland. For example, some of the 

decline in rangeland was due to conversions to non-cropland uses, such as 

developed land. Appendix II has additional NRI data on net changes in 

grassland and other land-use categories. 

The NRI also provides information on conversions of rangeland and 

pastureland to cropland. As shown in table 1, for selected USDA crop 

production regions, the highest conversions of rangeland to cropland were 

in the Northern Plains, where 2.61 million acres (about 3.5 percent) and 

590,000 acres (about 0.8 percent) were converted during 1982 through 

1997 and 1997 through 2003, respectively. The annual rangeland 

conversion rates declined from the 1982 through 1997 time frame to the 

1997 through 2003 time frame for each of the three regions that had 

rangeland. Regarding conversions of pastureland to cropland, the highest 

amounts were in the Corn Belt, where 4.48 million acres (about 17.6 

percent) and 1.66 million acres (about 8 percent) were converted during 

1982 through 1997 and 1997 through 2003, respectively. 

Page 13 GAO-07-1054 Agricultural Conservation
Table 1: Conversions of Rangeland and Pastureland to Cropland in Selected Crop Production Regions, 1982-1997 and 1997-

2003 

acres in millions with margins of error 

Region 

Rangeland to 

cropland, 1982-1997

Rangeland to 

cropland, 1997-2003

Pastureland to

cropland, 1982-1997 

Pastureland to

cropland, 1997-2003

Northern Plainsa2.61

(2.19-3.03)

0.59

(0.47-0.71)

1.80 

(1.57-2.03) 

0.77

(0.62-0.92)

Southern Plainsb1.17

(0.98-1.36)

0.29

(0.15-0.43)

0.94 

(0.70-1.18) 

0.42

(0.28-0.56)

Mountain Statesc 2.04

(1.63-2.45)

0.58

(0.27-0.89)

0.99 

(0.76-1.22) 

0.80

(0.55-1.05)

Lake Statesd d d1.98 

(1.80-2.16) 

0.96

(0.80-1.12)

Corn Belte e e4.48 

(4.21-4.75) 

1.66

(1.46-1.86)

Source: NRCS’s NRI data. 

Note: These regions have large amounts of cropland and have or previously had large amounts of 

native grassland as well. 

a

The Northern Plains states are Kansas, Nebraska, North Dakota, and South Dakota. 

b

The Southern Plains states are Oklahoma and Texas. 

c

The Mountain States are Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah, and 

Wyoming. 

d

The Lake States are Michigan, Minnesota, and Wisconsin. None of these states had measurable 

rangeland in 1982 or 1997. 

e

The Corn Belt States are Illinois, Indiana, Iowa, Missouri, and Ohio. Among these states, only 

Missouri had measurable rangeland in 1982 or 1997. Specifically, Missouri had about 143,000 and 

88,000 acres of rangeland in 1982 and 1997, respectively. 

National Agricultural Statistics Service’s (NASS) Census of Agriculture. 

The Census of Agriculture, conducted every 5 years by NASS, is a census 

of U.S. farms and ranches and is another source of national data on 

changes in the amount of private grasslands on farms. The Census of 

Agriculture does not use the NRI definitions of rangeland and pastureland,

and unlike the NRI, the Census of Agriculture combines rangeland and 

pastureland grasslands into a single category. Also, unlike the NRI, the 

Census of Agriculture provides data only on net changes and does not 

provide information on conversions of grassland to cropland. According to

the Census of Agriculture, rangeland and pastureland declined by 21.9 

million acres (about 5.1 percent) between 1978 and 1992 and 2.9 million 

acres (about 0.7 percent) between 1997 and 2002. Appendix III provides 

additional information from the Census of Agriculture on changes in land 

use for the United States and selected states. 

Page 14 GAO-07-1054 Agricultural Conservation
FSA data for Montana, North Dakota, and South Dakota. In recent years, 

to provide information to FWS and Ducks Unlimited on the amount and 

location of native grassland converted to cropland, FSA state and county 

offices in Montana, North Dakota, and South Dakota voluntarily collected 

county-level data on conversions of grassland that had no prior cropping 

history.11 The FSA offices collected this information through existing 

annual acreage reports. These data showed that within North Dakota and 

South Dakota, conversions have been highest in counties in the western 

part of the Prairie Pothole Region, an area of many small, isolated 

wetlands where the remaining native grassland provides important wildlife 

habitat. Table 2 shows the available data on acres converted in 2005 and 

2006. 

Table 2: Conversions of Grassland That Had No Prior Cropping History to Cropland 

in Montana, North Dakota, and South Dakota, 2005 and 2006 

in acres 

State 2005 2006

Montana 10,373 6,245

North Dakota a 20,592

South Dakota 54,404 47,167

Source: GAO’s analysis of FSA’s data. 

a

According to FSA officials in North Dakota, consistent data are not available for 2005 because 

county offices did not use consistent data collection methods in that year. 

Ducks Unlimited Study.

12 A recent Ducks Unlimited study provided 

additional information regarding the extent of native grassland 

conversions to cropland in the western part of the Prairie Pothole Region 

 11FSA state officials in these states instructed county offices on the procedures to use in

collecting data on conversions of grassland that had no cropping history to cropland, and

they believe county offices used consistent procedures. However, they have not confirmed 

that the county offices used these procedures. As a result, some counties may have 

overreported or underreported the number of acres converted. In addition, it is possible 

that some of the converted land identified as previously uncropped grassland had been 

converted to cropland before FSA began keeping crop history records, was later returned 

to grassland, and then was again converted to cropland. 

12Scott Stephens, Johanna Walker, Darin Blunck, Aneetha Jayaraman, and Dave Naugle, 

Grassland Conversion in the Missouri Coteau of North and South Dakota 1984-2003, 

Ducks Unlimited (forthcoming). Information from this report was presented as “Grassland 

Conversion and Risk Models for the Missouri Coteau: Tools for Staying Ahead of the Plow,” 

at the annual conference of the South Dakota Wildlife Society, Oacoma, South Dakota,

March, 2007. 

Page 15 GAO-07-1054 Agricultural Conservation
in North Dakota and South Dakota. The researchers analyzed conversions 

from 1984 through 2003, examining satellite imagery from this period and

performing field checks to identify native grassland. The study found that 

from 1984 through 2003, an estimated 144,000 acres were converted from 

native grassland to cropland. The highest conversions were in central 

South Dakota. The study concluded that the annual conversion rates—

which ranged from 0.32 percent to 0.95 percent across the study areas—

were relatively low but that the acreage converted was significant from a 

biological and economic perspective. 

Although states other than Montana, North Dakota, and South Dakota may 

have experienced conversions in recent years, we did not find any other 

systematic efforts to collect state or local conversions data. However, we 

were able to obtain some quantitative information that provides some 

indication of recent conversions in Nebraska. While data on the number of 

acres converted were not available, NRCS state and county officials in 

Nebraska provided data for 26 of the state’s 93 counties on the number of 

land tracts on which producers had informed USDA of their intention to 

convert grassland to cropland.13 The data show that USDA was informed of 

nearly 5,200 planned conversions during 2003 through 2006, with the 

highest county having 678 planned conversions. According to FSA, NRCS, 

and state wildlife agency officials in Nebraska, many producers were 

motivated to convert by an interest in gaining irrigation water rights before 

moratoriums on these rights took effect in certain areas of the state. Some 

of these officials believe this motivation—and thus the number of 

conversions—may decline if existing moratoriums on water rights are not 

modified and new moratoriums are not announced. 

Crop Insurance and Crop 

Disaster Assistance Costs 

Were Significantly Higher 

in Counties That Had 

Higher Conversion Rates 

Converting grassland to cropland, and thus bringing more land into 

production, has the potential to increase government costs because this 

new cropland is eligible for crop insurance, crop disaster assistance, and

marketing assistance loan payments, and could become eligible for direct 

and countercyclical payments if an update of crop base acres is allowed in 

the future. However, only limited data are available on government costs 

associated with grassland converted to cropland because USDA has little 

information on the location of converted land tracts and generally does 

 13These counties are in a contiguous area that runs from southwest to northeast across

Nebraska. NRCS officials believed conversion rates were relatively high in the counties of 

this area. According to FSA and NRCS officials in Nebraska, producers almost always carry 

out these planned conversions. 

Page 16 GAO-07-1054 Agricultural Conservation
not track farm program payments to specific tracts. As such, we analyzed

county crop insurance and disaster assistance payments data in relation to

2005 and 2006 data on conversions of grassland to cropland for South 

Dakota counties.14 The South Dakota counties that had the most 

conversions of grassland with no cropping history to cropland also had 

significantly higher crop insurance and crop disaster assistance costs than

other counties. Specifically, we found: 

Crop insurance. Our analysis of RMA’s crop insurance data indicates that 

conversions of grassland with no cropping history added 

disproportionately to government costs for crop insurance in South 

Dakota. Table 3 shows the net crop insurance payments received by 

producers in the 16 South Dakota counties with the highest rates of 

conversions in 2005 and 2006 in comparison with the net payments 

received by producers in the state’s other counties. The 16 highest 

conversion counties had net crop insurance payments that averaged

$13.03 per acre from 1997 to 2006, almost twice as much as the $6.66 per 

acre net payment received in South Dakota’s remaining 50 counties. Also 

illustrated in the table is the contrast between the net payments in the 16 

highest conversion counties and 7 historically cropped counties in 

southeast South Dakota that had a negative net crop insurance benefit 

during this period––that is, crop producers in these counties collectively 

paid more into the crop insurance program as premiums and other fees 

than they received from the program as indemnity payments.15

 14We selected South Dakota counties because conversion data were available by county for 

2005 and 2006 and conversions have received considerable attention in the state. In 

conducting this analysis, we assumed that the counties with the highest number of 

converted acres in 2005 and 2006 were also the counties with the highest conversion rates

in previous years. 

15In addition, we separated the 66 South Dakota counties into three groups based on the

number of acres converted and found that the 22 counties with the highest number of

converted acres had net crop insurance benefits of about $600 million from 1997 to 2006,

while the 22 counties with the lowest number of conversions had net benefits of about $100

million for the same time period.

Page 17 GAO-07-1054 Agricultural Conservation
Table 3: Comparison of Net Crop Insurance Payments in South Dakota for the 16 Highest Conversion Counties versus Other 

Counties

Crop years 1997 to 2006 Crop years 1989 to 2006 

Area Crop Total Per acre Total Per acre

16 counties with the highest 

conversions 

Corn $255,520,183 $22.78 $280,392,006 $18.62

All cropsa485,522,546 13.03 550,751,456 10.30

50 other counties Corn 231,662,594 8.27 290,214,231 7.11

All cropsa532,176,375 6.66 672,826,085 5.67

7 selected historically 

cropped countiesb

Corn (3,562,466) (0.45) 5,135,553 0.42

All cropsa(3,059,947) (0.19) 11,805,739 0.49

State totals Corn $487,182,777 $12.42 $570,606,237 $10.21

All cropsa$1,017,698,921 $8.68 $1,223,577,541 $7.11

Source: GAO’s analysis of RMA’s data. 

Note: Net crop insurance payments are the indemnity payments that producers received less the 

premiums and administrative fees that producers pay. We did not include government costs resulting 

from (1) payments to insurance companies for underwriting gains and administrative and overhead 

expenses and (2) the cost of RMA operating expenses in this analysis because county-level data on 

these costs were not available. 

a

Includes all crops except forage production and forage seeding. 

b

These counties have not had large increases in crop production in recent years and are located in 

two adjacent NRCS major land resource areas. 

Crop disaster assistance payments. Similar to our crop insurance 

analysis, our analysis of FSA crop disaster assistance payments data 

indicates that conversions of grassland with no cropping history add 

disproportionately to government costs for disaster assistance payments 

in South Dakota.16 Table 4 shows the crop disaster assistance payments 

received by producers in the 16 South Dakota counties with the highest 

conversion rates in comparison with the payments received by producers 

in other South Dakota counties. From 1998 to 2004, crop disaster 

assistance payments in the 16 highest conversion counties totaled more 

than $195 million (40 percent of the state total), compared with

approximately $292 million for the other 50 South Dakota counties, 

 16Crop disaster assistance payments are approved by the Congress on an ad hoc basis, and 

therefore these payments do not necessarily add to government costs every year. However, 

ad hoc crop disaster assistance payments have been available for nearly every crop year

since 1988. 

Page 18 GAO-07-1054 Agricultural Conservation
including about $16 million in 7 historically cropped counties in southeast 

South Dakota. 

Table 4: Comparison of Crop Disaster Assistance Payments in South Dakota for the 16 Highest Conversion Counties versus 

Other Counties

Crop years 

16 counties with the highest

conversions (as a percentage

of state totals) All 50 other counties

7 selected historically 

cropped countiesa

State totals

1998 $8,534,884 (38%) $13,710,472 $393,778 $22,245,356

1999 16,063,451 (40%) 24,502,868 4,969,368 40,566,319

2000 23,266,266 (45%) 28,741,631 1,992,956 52,007,897

2001 12,480,417 (34%) 24,474,570 2,782,104 36,954,987

2002 74,432,452 (42%) 104,322,913 2,716,984 178,755,365

2003 43,800,987 (46%) 50,521,907 2,796,699 94,322,894

2004 16,744,315 (27%) 45,360,495 784,346 62,104,810

Total $195,322,772 (40%) $291,634,856 $16,436,235 $486,957,628

Source: GAO’s analysis of FSA’s data. 

Notes: (1) These crop disaster assistance payments include payments for losses of major cultivated

crops, such as corn, soybeans, and wheat, as well as fruits and vegetables, such as melons, apples, 

cabbage, and beets. In addition, some payments were made for grass losses. However, according to

an FSA official, these payments were not for grazing losses. (2) In analyzing crop disaster assistance 

payments, we did not calculate payments per acre because data on the number of acres that 

potentially were eligible for these payments were not available. 

a

These counties have not had large increases in crop production in recent years and are located in 

two adjacent NRCS major land resource areas. 

According to USDA officials, a possible reason for the relatively high crop 

insurance and disaster assistance payments in South Dakota counties with 

the highest conversion rates is that these counties are in areas that are 

more prone to drought and crop losses than other major crop-producing 

counties. Drought has been the largest cause of crop insurance indemnity 

payments nationwide from 1989 to 2004, accounting for about 40 percent 

of the primary causes of total indemnity payments. 

Our 2005 report on crop insurance explains why areas that are prone to 

frequent or severe crop losses may have relatively high crop insurance 

costs.17 The crop insurance program has high premium subsidies to 

encourage participation. Premium subsidies are calculated as a percentage

 17GAO, Crop Insurance: Actions Needed to Reduce Program’s Vulnerability to Fraud,

Waste, and Abuse, GAO-05-528 (Washington, D.C.: Sept. 30, 2005). 

Page 19 GAO-07-1054 Agricultural Conservation
of the total premium and can be as high as 67 percent. The subsidies shield 

producers from the full cost of growing crops in these areas. Because 

premiums are higher in areas that are prone to frequent or severe crop 

losses than in the major crop-producing counties, premium subsidies have 

the effect of causing crop insurance costs to be higher in these areas. 

Federal farm program payments are an important factor in producers’ 

decisions to convert native grassland to cropland, but rising crop prices 

and advances in crop production technology are also important factors in 

these conversions. Specifically, increased crop prices, due largely to rising

ethanol demand, are important in producers’ decisions. In addition, the 

adoption of genetically modified crops as well as new farming techniques 

have made cropping more profitable on land previously considered to be 

marginally suitable or generally unsuitable for crop production. Regarding

farm program payments, our analysis of crop production costs and returns 

and our review of economic studies indicate that these payments are an 

important factor in producers’ conversion decisions. Moreover, the 

incentives farm programs provide to convert grassland to cropland appear

to be inconsistent with USDA conservation programs that encourage 

producers to either maintain grassland or convert cropland to grassland or 

another conserving use.

Farm Program 

Payments, Rising 

Crop Prices, and the 

Adoption of New 

Farming Technologies 

Provide Incentives to 

Expand Crop 

Production on Native 

Grasslands 

Rising Crop Prices and 

Advanced Crop Production 

Technologies Are 

Important Factors in 

Decisions to Convert 

Native Grassland to 

Cropland 

Increasing demand for crops used to produce ethanol and other renewable 

fuels has caused crop prices to increase, increasing the profitability of 

crop production and providing incentives for conversions. For example, 

the price of a March 2007 corn futures contract on the Chicago Board of 

Trade rose from $2.50 per bushel in September 2006 to $4.16 per bushel in

January 2007, an increase of more than 66 percent. A May 2007 USDA 

study stated that the increased demand for renewable fuels would result in 

continued expansion of crop acreage and bring new land into crop 

production, particularly in the Corn Belt and the Northern Plains.18

Furthermore, a June 2007 NASS report announced that corn growers had 

planted 92.9 million acres of corn in 2007, 14.6 million acres more than 

were planted in 2006 and the highest total since 1944.

19 NASS stated that 

 18USDA Economic Research Service and Office of the Chief Economist, An Analysis of the

Effects of an Expansion in Biofuel Demand on U.S. Agriculture, (Washington, D.C., May 

2007). 

19USDA National Agricultural Statistics Service, Acreage, June 29, 2007. 

Page 20 GAO-07-1054 Agricultural Conservation
this increased corn acreage was partially offset by reduced soybean 

acreage in the plains and the Corn Belt. USDA and agricultural experts 

expect this demand to continue to increase, and corn and other crop 

prices are expected to be relatively high for several years. NRCS and FSA 

officials in states and counties with the highest conversions of grassland to 

cropland confirmed that crop prices strongly influence producers’ 

conversion decisions. 

In addition, the availability of advanced crop production technologies, 

including genetically modified crops, such as herbicide-resistant soybeans, 

and new farming techniques, such as no-till planting, contribute to 

producers’ decisions to convert native grassland to cropland. For example, 

herbicide-resistant soybeans became available to farmers for the first time 

in 1996, and, according to USDA, usage nationwide expanded to over 40

percent of soybean acreage in 1998 and then to 87 percent by 2005 (95

percent in South Dakota). The use of these soybean varieties makes weed 

control easier and has, in turn, made no-till planting—a conservation 

practice that reduces soil erosion and conserves moisture while also 

cutting fuel and labor costs—more feasible. These developments have 

reduced the cost of production and made it more profitable to produce 

high-value crops, especially corn and soybeans, in some areas that 

historically were considered marginally suitable or generally unsuitable 

for crop production. FSA and NRCS officials confirmed that advanced 

crop production technologies strongly influence producers’ conversion 

decisions. 

Farm Program Payments 

Provide Incentives to 

Convert Native Grassland 

to Cropland by Increasing 

Producers’ Income and 

Reducing Their Financial 

Risks 

Farm program payments, including crop insurance, crop disaster 

assistance, and marketing assistance loan payments, are important factors 

in producers’ decisions to convert native grassland to cropland because

they reduce producers’ financial risks and, in many cases, increase 

producers’ profits over maintaining grassland. To evaluate the impact of

farm program payments and other factors in producers’ conversion 

decisions, we prepared a partial budget analysis for a hypothetical 160-

acre tract in a South Dakota county—located in the Prairie Pothole 

Region—that was among the state’s highest counties in conversions of 

grassland that had no cropping history in 2005 and 2006. A partial budget 

analysis evaluates the economic effects of making an adjustment to part of

the farm operation, such as changing what is produced or buying new 

machinery. Specifically, we compared the estimated costs and returns for 

2003 through 2007 from 160 acres of native grassland—used for grazing as 

part of a cow-calf operation—to the costs and returns if the same land had 

been converted to cropland in 2003 and used to produce corn, soybeans, 

Page 21 GAO-07-1054 Agricultural Conservation
and spring wheat through 2007. This period exhibited a variety of yield and 

price scenarios as well as farm program payments and thus may illustrate 

how the significance of farm program payments can change from year to 

year. 

We found that for certain years, high crop prices as well as farm program 

payments would provide economic incentives for a producer to convert 

native grassland used for grazing in a cow-calf operation to a cropping 

operation. In 3 of the 5 years, the conversion from grazing to cropping 

would have resulted in increased income. In the other 2 years, the 

conversion would have resulted in reduced income largely because cattle 

prices were high relative to crop prices and farm program payments were 

lower than in the other years. Without any farm program payments, 

income would have increased only in 2007, but in view of projections that 

crop prices will remain relatively high, this increase in income without 

farm program payments may continue for several years.20 However, even 

with high crop prices, farm program payments from crop insurance and

crop disaster assistance likely will continue to be a relevant factor in 

conversion decisions because of the need for protection against adverse 

crop production risks, such as drought. Table 5 shows the net change in 

income from shifting to crop production from a cow-calf operation on a 

160-acre parcel of land, with and without farm program payments (crop 

insurance, crop disaster assistance, and marketing assistance loan 

payments).21 The table also shows corn prices and yields as well as calf 

and cow prices during this period. 

 20To estimate crop prices for the 2007 crop enterprise, we used regional average crop prices

for January to July 2007. 

21Since this land had not been in crop production previously, under current legislation it 

would not be eligible for counter-cyclical payments or direct payments. 

Page 22 GAO-07-1054 Agricultural Conservation
Table 5: Estimated Net Change in Income for a Shift to Crop Production from a Cow-Calf Grazing Operation on a 160-Acre 

Tract in Central South Dakota, 2003-2007 

Factors 2003 2004 2005 2006 2007

Net change in incomea

With farm program payments (crop insurance, 

crop disaster assistance, and marketing 

assistance loan payments) $3,761.20 ($3,602.75) ($4,834.66) $2,366.35 $2,099.47

Without farm program payments (crop insurance, 

crop disaster assistance, and marketing 

assistance loan payments) ($8,499.29) ($6,631.58) ($7,634.62) ($6,729.35) $2,099.47

Selected prices and yields

Corn price ($ per bushel)b$2.36 $1.64 $1.76 $3.37 $3.52

Corn yield (bushels per acre)c37.1 84.4 81.2 41.5 69.0

Calf price ($ per 100 pounds)d$111.38 $121.59 $136.85 $113.16 $124.48

Cow price ($ per head)e$616.50 $750.83 $839.27 $797.55 $769.00 

Source: GAO’s analysis using data from South Dakota State University, NRCS, NASS, RMA, FSA, and Drovers’ Inc. 

Notes: (1) We assumed a decision was made to convert to crop production in 2003 and carried 

forward through 2007. (2) The net change in income is the result of comparing the alternate income 

streams from cropping (corn, soybeans, and spring wheat) versus grazing (cow-calf operation). (3) 

Both herd liquidation and conversion costs were amortized over a 5-year period from 2003 to 2007 at 

a 6 percent rate of interest. 

a

While the 2003 to 2006 results are retrospective, the 2007 crop had not been harvested as of July 

2007. On the basis of July 2007 crop prices and USDA estimates, we assumed no marketing 

assistance loan payments would be made for 2007. We did not include any crop insurance or disaster

assistance payments for 2007, although such payments may be made in the future.

b

Corn prices for 2003 through 2006 are yearly averages of weekly cash prices in central South 

Dakota from the South Dakota State University extension grain marketing service. Corn prices for 

2007 are average weekly cash prices for the Central South Dakota region from January to July 2007, 

from South Dakota State University extension service. 

c

Corn yields for 2007 are a moving average of NASS county yields, adjusted for soil productivity. 

d

For 2003 through 2006, calf prices are November South Dakota stocker cattle prices, monthly 

average, obtained from South Dakota State University’s “Cattle Market Review,” June 22, 2007, for 

500 to 600 pound steers. For 2007, calf prices are average monthly prices for the first 6 months of 

2007, January through June. 

e

Cow prices are bred female prices for “young and middle aged” bred cows from the central region of 

the United States which includes South Dakota, obtained from Drovers. For 2007, bred female prices 

are average monthly prices for the first 5 months of 2007, January through May. 

We did not attempt to evaluate the social, environmental, and wildlife 

habitat costs and benefits of this conversion. Furthermore, although crop 

prices are projected to continue to rise over the next several years, the 

likelihood of prices remaining at such high levels, especially in

conjunction with high levels of production, may not materialize. In the 

absence of data on future weather patterns, yields, and commodity prices, 

we did not project future rates of return. Moreover, we did not project 

Page 23 GAO-07-1054 Agricultural Conservation
future rates of conversion because we cannot speculate on many of the 

factors that enter into producers’ land use decisions, such as their aversion

to risk in the presence of significant potential crop yield variability, 

although the stabilizing effect of crop insurance would tend to lessen risk 

concerns, especially compared to livestock grazing. Nevertheless, this 

analysis demonstrates that there have been economic incentives for 

producers, at least in the short run, to shift into crop production on native 

grassland. It also illustrates the importance of farm program payments in 

years of lower crop prices or yields. Appendix IV provides more 

information on our partial budget analysis. 

In addition to our partial budget analysis, several economic studies we 

reviewed found that farm program payments influence producers’ 

conversion decisions because they increase the expected profitability of

cropping land while lowering the risks. For example, a study by USDA’s 

Economic Research Service (ERS) found that increased crop insurance 

subsidies in the mid-1990s encouraged producers to expand crop 

production in the contiguous 48 states by an estimated 2.5 million acres, 

with most of the land coming from pastureland and other grassland. 

Another recent paper, by Iowa State University agricultural economists, 

concluded that the reduction in risk by crop insurance and commodity 

programs creates incentives for farmers and landlords to focus on growing 

the commodities supported by these programs. In addition, some of the 

economic studies we reviewed raised the possibility that land value 

appreciation due to farm program payments may be another economic 

incentive for farmers to convert native grassland to cropland. Since the

value of agricultural land depends, in part, upon expected future earnings 

from farming, purchasers of land will pay a higher price for land that is 

expected to provide a future stream of farm program payments. For 

example, ERS reported that the effect of farm program payments on land 

values varies widely throughout the United States but that increases are 

highest in the Northern Plains. For more detailed summaries of these and 

other studies that we examined, see appendix V.

Most of the FSA and NRCS state and local officials in Montana, Nebraska,

North Dakota, and South Dakota confirmed that farm program payments, 

specifically crop insurance, crop disaster assistance, and marketing 

assistance loan payments are important—although not always the most 

important—factors in producers’ conversion decisions. In particular, 

among the farm programs, the officials noted the importance of crop 

insurance because it reduces the risk of growing crops. Nearly all of these

officials believed that farm program payments play a greater role in 

producer decisions when crop prices are lower. For example, several 

Page 24 GAO-07-1054 Agricultural Conservation
officials noted that a reduction in program payments would have had a 

more pronounced effect in reducing crop conversions 2 years ago, before

the prospect of increased demand for ethanol contributed to higher corn 

prices. 

Incentives to Convert 

Grassland May Work at 

Cross Purposes with USDA 

Conservation Programs 

The incentives provided by farm program payments appear to be 

inconsistent with USDA conservation programs, such as the Wetlands 

Reserve Program,22 the Grassland Reserve Program,23 and CRP. These 

conservation programs, among other things, pay producers and 

landowners to either maintain grassland or convert cropland to grassland 

or another conserving use. However, these programs appear to be at odds 

with farm programs that provide incentives for conversions of grassland to 

cropland. For example, NRI data on South Dakota CRP enrollments—

which represent conversions of cropland to grassland—and conversions 

of grassland to cropland illustrate this apparent inconsistency. From 1982 

through 1997, 1.69 million acres of cropland in South Dakota were enrolled 

in CRP—with almost all of this acreage planted in grasses—at a total 

government cost of about $633 million. However, during the same period, 

1.82 million acres of grassland in South Dakota were converted to 

cropland. About half of this acreage had been rangeland, generally 

supporting native grasses and vegetation, and the other half pastureland. 

Other states had similar patterns during this period. For example, North 

Dakota had CRP enrollments of 2.8 million acres, CRP costs of about $973 

million, and grassland conversions to cropland of 1.16 million acres. 

Montana had CRP enrollments of 2.7 million acres, CRP costs of about 

$957 million, and conversions to cropland of 1.35 million acres. 

 22The Wetlands Reserve Program was authorized by the Food, Agriculture, Conservation, 

and Trade Act of 1990 (1990 Farm Bill), Pub. L. No. 101-624, 104 Stat. 3359, to assist 

landowners in restoring and protecting wetlands. Producers enrolling in the program must 

agree to implement approved wetland restoration and protection plans. In return, 

participating producers receive payments based on the fair market value of the land

covered by the easement. The 2002 Farm Bill reauthorized the program with mandatory 

funding through fiscal year 2007 and set a maximum enrollment ceiling of 2.275 million 

acres. 

23The Grassland Reserve Program was authorized in the 2002 Farm Bill, which authorized 

enrollment of up to 2 million acres of restored or improved grassland, rangeland, and 

pastureland under temporary and permanent easements or rental agreements of at least 10

years. A total of $254 million in mandatory funding between fiscal years 2003 and 2007 was

provided. The 2002 Farm Bill also provided cost sharing payments at 75 percent to restore

disturbed grasslands and 90 percent to protect virgin grasslands. 

Page 25 GAO-07-1054 Agricultural Conservation
Sodbuster has had little impact in limiting the conversion of native 

grassland to cropland, in part because much of the native grassland 

converted in recent years is not highly erodible and therefore not subject 

to Sodbuster. According to USDA officials, even in most cases where 

Sodbuster applies, the costs associated with Sodbuster compliance have 

not been enough to deter producers from converting the land. USDA and 

some stakeholder organizations have suggested a proposal known as Sod 

Saver that would discourage native grassland conversions by making 

converted land ineligible for farm program payments. 

Much of the native grassland converted to cropland in recent years is 

classified as non-highly erodible land and thus is not subject to Sodbuster. 

NRI data on the percentage of rangeland converted to cropland and 

classified as highly erodible provide an approximation of the percentage of 

conversions that are subject to Sodbuster. According to NRI data, between

1997 and 2003, an estimated 59 percent of the rangeland converted to 

cropland in the Northern Plains production region—encompassing 

Kansas, Nebraska, North Dakota, and South Dakota—was classified as 

non-highly erodible. In the Southern Plains and the Mountain regions, 

which also have large amounts of rangeland, NRI data for this period 

indicate an estimated 43 percent and 47 percent, respectively, of the 

rangeland acres that producers converted were classified as non-highly 

erodible. In addition, according to our analysis of NRCS records for 

selected Nebraska counties that have had relatively high conversion rates, 

slightly over half of the land parcels converted in those counties between 

2003 and 2006 were classified as non-highly erodible. Because non-highly 

erodible land is not subject to Sodbuster, producers who convert such 

land do not have to bear the cost of applying conservation systems in 

order to maintain farm program benefits. 

Sodbuster Has Had 

Little Impact on 

Native Grassland 

Conversions 

Much of the Native 

Grassland Converted in 

Recent Years Was Not 

Subject to Sodbuster 

Even When Planned 

Conversions Are Subject to 

Sodbuster, Producers Are 

Not Usually Deterred 

According to FSA and NRCS officials, even when native grassland that is 

to be converted is classified as highly erodible, producers generally 

perceive that the potential profits from cropping the land outweigh the 

potential costs of controlling soil erosion as required by Sodbuster. As 

such, officials in Montana, Nebraska, North Dakota, and South Dakota 

counties that have had relatively high conversion rates said that the costs

associated with meeting Sodbuster’s soil erosion standards usually do not 

discourage native grassland conversion, especially when crop prices are 

high and crop production is profitable. Specifically, these officials said 

Sodbuster rarely or never deterred conversions. According to these 

officials, the cost of complying with Sodbuster has been reduced by new 

Page 26 GAO-07-1054 Agricultural Conservation
crop production technologies. For example, almost all of the officials cited 

no-till planting as a low-cost management practice that controls soil 

erosion sufficiently to meet Sodbuster requirements and added that the 

development of herbicide-resistant crops has facilitated producers’ 

adoption of no-till planting by making it easier to control weeds without 

using tillage. 

The views expressed by the officials we spoke with are generally 

consistent with the responses of local NRCS officials to our 2002 survey, in

which we asked them to rate the effectiveness of Sodbuster in limiting the 

conversion of native grassland.24 The survey results for four states with 

relatively high rates of conversions—Montana, Nebraska, North Dakota,

and South Dakota—are shown in table 6. As indicated in the table, the 

majority of officials in three of these states—Montana, Nebraska, and 

South Dakota—responded that Sodbuster was slightly or not effective in

limiting native grassland conversion. Nearly 44 percent of officials in 

North Dakota provided a similar response. 

Table 6: Local NRCS Officials’ Responses to GAO Survey Question on the 

Effectiveness of Sodbuster in Limiting the Conversion of Native Grassland to 

Cropland 

percent 

State 

Extremely 

effective

Very 

effective

Moderately 

effective 

Somewhat 

effective 

Slightly or 

not effective 

Montana 0 11.9 7.1 28.6 52.4

Nebraska 0 4.1 11.0 15.1 69.9

North Dakota 0 16.7 18.8 20.8 43.8

South Dakota 1.9 7.7 13.5 17.3 59.6

Source: GAO survey results. 

 24This survey was done in conjunction with our work on Agricultural Conservation: USDA 

Needs to Better Ensure Protection of Highly Erodible Cropland and Wetlands, GAO-03-418

(Washington, D.C.: Apr. 21, 2003). See also the special publication, Agricultural 

Conservation: Survey Results on USDA’s Implementation of Food Security Act 

Compliance Provisions (GAO-03-492SP, Apr. 21, 2003), which includes survey results

stratified by state. 

Page 27 GAO-07-1054 Agricultural Conservation
To discourage future conversions, USDA and some stakeholder 

organizations have suggested a proposal known as Sod Saver that would 

make certain grassland—primarily native grassland—ineligible for farm 

program payments if it is converted to cropland. USDA’s proposed 

legislative language—issued in April 2007—applies to rangeland and native

grassland not used for crop production at any time during the previous 6 

years preceding the effective date of the 2007 farm bill. If such land is 

converted to crop production, it would be permanently ineligible for a 

wide range of farm program payments, including direct and 

countercyclical, marketing assistance loan, conservation, disaster 

assistance, and crop insurance payments. According to USDA’s proposal, 

Sod Saver is needed because, among other things, grasslands provide 

important ecological functions and the rate of conversion to cropland 

could increase greatly over the next several years as increased production 

of biofuels boosts the demand for corn and other crops. 

USDA and Some 

Stakeholder Organizations 

Have Offered a Proposal to 

Discourage Grassland 

Conversions 

Most NRCS state and local officials we spoke with suggested that barring 

newly converted cropland from farm program payments, as called for 

under Sod Saver, would be a deterrent to new conversions in their 

counties. However, FSA state and local officials we interviewed were less 

certain than the NRCS officials about Sod Saver’s potential impact. While 

generally acknowledging that barring farm program payments would 

affect some conversion decisions, these officials placed more emphasis on 

the impact of crop prices and advanced production technologies. Officials 

from both agencies agreed that Sod Saver’s impact would be less when 

crop prices are high than when they are low. 

Certain farm, crop, and livestock organizations have expressed opposition 

to USDA’s Sod Saver proposal. These organizations include the American 

Farm Bureau Federation, National Association of Wheat Growers, 

National Corn Association, National Cotton Council, National Pork 

Producers Council, United Egg Producers, and USA Rice Federation. For 

example, a crop organization official we interviewed said that advances in

crop production technology continue to make more land suitable for 

cropping and that it would be inequitable for some crop producers to 

receive farm program payments on their cropland while others could not. 

In a May 15, 2007, letter, organizations opposed to the Sod Saver proposal 

expressed their concerns. Among other things, they said 

• Sod Saver would constrain farmers’ ability to adapt to changing market 

conditions related to the growing demand for crops to produce food and 

renewable fuels. 

Page 28 GAO-07-1054 Agricultural Conservation
• Sod Saver would reduce the amount of farmable land available for 

beginning farmers. 

• Current information on the extent of conversions is insufficient to justify 

the Sod Saver proposal. 

• Existing policy—referring to the current conservation compliance 

provisions, including Sodbuster—is effectively controlling soil erosion on 

highly erodible land. 

On the other hand, the Sod Saver approach is supported by a number of 

wildlife, environmental, and conservation organizations, as well as certain

cattle industry interests. These organizations include, Ducks Unlimited, 

Pheasants Forever, the North Dakota and South Dakota chapters of the 

Wildlife Society, and the South Dakota Cattlemen’s Association. In 

particular, wildlife organizations have emphasized that Sod Saver would 

help maintain native grassland habitat that is important for waterfowl and 

grassland birds, especially in Prairie Pothole Region areas of Montana, 

North Dakota, and South Dakota. In addition, a cattle industry official we 

spoke with expressed concern that farm program payments encourage 

conversions and subsidize crop production, putting cattle producers at a 

disadvantage relative to crop producers in the competition for land. In a 

May 29, 2007, letter, a coalition of representatives from Montana, North 

Dakota, and South Dakota wildlife organizations and agencies responded 

to arguments against the Sod Saver proposal. Among other things, they 

said 

• Sod Saver would not prevent farmers from responding to market signals 

because it would allow conversions to cropland.

• Beginning farmers would not have good prospects for success if they grew

crops on marginal lands that have not been cropped previously, and 

beginning ranchers would benefit from Sod Saver because it would result 

in more grassland being available to them. 

• Available FSA and NRCS data and anecdotal information about 

conversions are sufficient to justify the Sod Saver proposal. 

• Soil erosion is still a significant problem in North Dakota and South 

Dakota, and the conservation compliance provisions, including Sodbuster, 

do not prevent the conversion of native grassland to cropland.

Page 29 GAO-07-1054 Agricultural Conservation
In the absence of more comprehensive and current data, policymakers and 

stakeholders cannot fully understand the extent of conversions of native 

grassland to cropland or how farm program payments and other factors 

influence producers’ conversion decisions. More complete information, 

especially at the county or local level, would enable stakeholders to 

identify where conversions are occurring and the environmental 

implications. In addition, having this information would be a first step in 

assessing the additional farm program costs that result from conversions. 

Such knowledge can help in developing policies balancing the 

environmental and economic benefits of grasslands against the rising 

demand for food, feed, fiber, and fuel from renewable sources. In 

developing the means to collect such information, USDA could draw on 

the experiences of FSA state and county offices in Montana, North Dakota, 

and South Dakota, which have incorporated the collection of conversions 

data into their annual acreage reporting process. In addition, the dynamic 

between USDA farm program payments and conservation programs needs 

to be better understood. Available data suggest that USDA’s programs that 

increase the profitability of cropping and its programs that encourage 

conservation of rural land may be working at cross purposes with one 

another. Specifically, some conservation programs, such as CRP, provide 

incentives for conversions of cropland to grassland, while farm program 

payments may have the unintended consequence of providing incentives 

for conversions of grassland to cropland. Such apparent inconsistency 

undermines USDA’s conservation goals and the most effective use of 

funds. While we have identified possible cases where USDA’s farm 

program payments work at cross purposes with its conservation programs, 

there could be others. Any such inconsistencies should be identified and 

examined in order to better inform the Congress of opportunities to 

improve the effectiveness and efficiency of these programs. 

To provide policymakers and stakeholders with more comprehensive and

current information on the extent of native grassland conversions to 

cropland, the associated farm program costs of these conversions, and 

their impact on natural resources, we recommend that USDA annually 

track native grassland conversions to cropland in those geographic areas 

where such conversions can occur. 

To better understand the extent to which farm programs, such as crop 

insurance, and conservation programs, such as the Conservation Reserve 

Program, may be working at cross purposes, we recommend that the 

Secretary of Agriculture direct the Administrator of the Economic 

Research Service, the Administrator of the Farm Service Agency, and the 

Conclusions 

Recommendations for 

Executive Action 

Page 30 GAO-07-1054 Agricultural Conservation
Chief of the Natural Resources Conservation Service to jointly study this 

issue and report their findings to the Secretary and the Congress. 

We provided a draft of this report to USDA for review and comment. 

USDA provided oral comments through the Chief, NRCS, on September 5, 

2007, indicating general agreement with the report’s findings and 

recommendations. USDA also said it wanted to ensure that GAO was 

aware that with few exceptions, the crop insurance program has strict 

criteria on where converted land may be insured. USDA noted that land 

generally must have a history of being cropped in at least 1 of the 3 

previous crop years in order to be eligible for crop insurance coverage, 

unless such acreage was not cropped because it was enrolled in another 

USDA program. Thus, newly converted grassland that has not been 

cropped in the previous 3 crop years or enrolled in another program is 

only insurable by written agreement as approved by USDA’s Risk 

Management Agency. According to USDA, written agreements go through

an underwriting process that is much more restrictive than for standard 

policies, resulting in reduced coverage and possible denial of coverage. 

For example, the insurance guarantee is generally based on the percent of

the average county yield. If the expected yield for the converted acreage is

less than 50 percent of the county average, the request for insurance is 

generally denied. In addition, USDA said certain types of coverage, such as 

prevented planting coverage, are not available for any written agreement 

approved for newly converted land. 

We recognize that USDA has criteria on where converted land may be 

insured. However, our work found that RMA does not have a method and 

the information needed to enforce its policy that land must have been 

cropped in at least 1 of the 3 previous crop years to be eligible for crop 

insurance coverage. Specifically, according to RMA officials we 

interviewed, RMA has limited ability to enforce these restrictions on 

insurance coverage because it lacks necessary information on land 

parcels’ location and cropping history. Thus, the restrictions may not 

prevent ineligible converted land from being covered. Moreover, even if 

RMA were able to enforce these restrictions, the converted land would be

eligible for crop insurance coverage in the year after the conversion. 

USDA also provided technical corrections, which we have incorporated 

into the report as appropriate. 

Agency Comments 

and Our Evaluation 

Page 31 GAO-07-1054 Agricultural Conservation
As arranged with your office, unless you publicly announce its contents 

earlier, we plan no further distribution of this report until 30 days from its 

issue date. At that time we will send copies of this report to appropriate 

congressional committees; the Secretary of Agriculture; the Director, 

Office of Management and Budget; and other interested parties. In 

addition, this report will be available at no charge on GAO’s Web site at 

http://www.gao.gov. 

If you or your staff have any questions about this report, please contact me 

at (202) 512-3841 or shamesl@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. Key contributors to this report are listed in appendix VI. 

Lisa Shames 

Director, Natural Resources 

 and Environment 

Page 32 GAO-07-1054 Agricultural Conservation
Appendix I: Objectives, Scope, and Appendix I: Objectives, Scope, and Methodology 

Methodology 

At the request of the Chairman, Senate Committee on Agriculture, 

Nutrition, and Forestry, and the Chairman, House Committee on 

Agriculture, we reviewed issues related to grassland conversions. 

Specifically, we determined (1) the extent of grassland conversions to 

cropland and the cost of farm program payments related to these newly 

converted cropland acres, (2) the relative importance of farm program 

payments versus other factors in producers’ decisions to convert grassland 

to cropland, and (3) any impact the Sodbuster provision has had on 

limiting grassland conversions. 

To determine the extent of grassland conversions to cropland, we 

examined land use data for 1982 through 2003 from the Natural Resources 

Conservation Service’s (NRCS) National Resources Inventory (NRI).1

 We 

supplemented this information with land use data gathered by the U.S. 

Department of Agriculture’s (USDA) National Agricultural Statistics 

Service (NASS).2

 In addition, we analyzed data gathered by USDA’s Farm 

Service Agency (FSA) state and county offices in Montana, North Dakota, 

and South Dakota on acres converted from grassland with no cropping 

history to cropland for 2005 and 2006. We also reviewed a collaborative 

study on conversions of native grassland to cropland in the Prairie Pothole 

Region prepared by Ducks Unlimited, Inc., a private advocacy group 

supporting the protection and restoration of wetlands and waterfowl 

habitat, in conjunction with the U.S. Fish and Wildlife Service (FWS); the 

South Dakota Department of Game, Fish and Parks; The Nature 

Conservancy; and the University of Montana.3

 In addition, we reviewed 

other relevant studies of grassland conversions to cropland, including a 

 1

The NRI, conducted by NRCS in cooperation with Iowa State University’s Center for 

Survey Statistics and Methodology, is a statistical survey of land use and natural resource

conditions and trends on U.S. nonfederal lands.

2

NASS conducts yearly surveys to gather data on aspects of U.S. agriculture production. 

NASS also administers the Census of Agriculture, a comprehensive census of U.S.

agriculture producers that is conducted every 5 years.

3

Scott Stephens, Johanna Walker, Darin Blunck, Aneetha Jayaraman, and Dave Naugle.

Grassland Conversion in the Missouri Coteau of North and South Dakota 1984-2003, 

Ducks Unlimited (forthcoming). Information from this report was presented as “Grassland 

Conversion and Risk Models for the Missouri Coteau: Tools for Staying Ahead of the Plow,” 

at the annual conference of the South Dakota Wildlife Society, Oacoma, South Dakota,

March, 2007.

Page 33 GAO-07-1054 Agricultural Conservation
Appendix I: Objectives, Scope, and 

Methodology 

2001 study4 by Texas A&M University and other researchers and a 1999 

study by University of Wisconsin researchers.5 We interviewed USDA 

officials from the Economic Research Service (ERS), FSA, NASS, NRCS, 

and the Risk Management Agency (RMA). We also interviewed FWS state 

officials in Colorado, Montana, Nebraska, North Dakota, South Dakota, 

and Texas; state government officials; and officials at land grant 

universities, including Iowa State University, Kansas State University, 

North Dakota State University, South Dakota State University, and Texas 

A&M University. To determine the cost of farm program payments on 

converted land, we interviewed ERS and FSA officials and analyzed RMA 

crop insurance and FSA disaster assistance payments data. Specifically, 

we analyzed crop insurance and crop disaster assistance payments data in 

relation to 2005 and 2006 data on conversions of grassland that had no 

prior cropping history to cropland for all South Dakota counties. We 

selected South Dakota counties because conversion data were available by

county for 2005 and 2006, and conversions have received considerable 

attention in the state. In conducting our analysis, we assumed that the 

counties with the most acres converted during those years were indicative 

of the counties with the most conversions during 1997 through 2006. 

To determine the relative importance of the availability of farm program 

payments in producers’ decisions to convert grassland to cropland, we 

identified and reviewed studies that directly examined the economic 

incentives of farm program payments on a producer’s decision to convert 

grasslands to cropland, as well as related studies that examine the effects 

of farm program payments on farm profitability and risk. To evaluate how 

factors such as conversion costs, expected crop prices, crop production 

costs and technology, and farm program payments affect conversion 

decisions, we analyzed farm-level budget data for a hypothetical 160 acres 

in a South Dakota county that had a relatively high conversion rate during 

2005 and 2006. The methodology for conducting this analysis was 

reviewed by ERS, NRCS, and land grant university agricultural economists 

and is discussed in appendix IV. In addition, we interviewed FSA and 

NRCS officials in Montana, Nebraska, North Dakota, and South Dakota to

 4

Richard Conner, Andrew Seidl, Larry Van Tassell, and Neal Wilkins, “United States

Grasslands and Related Resources: An Economic and Biological Trends Assessment,” a 

special report prepared with financial support from the National Cattlemen’s Beef 

Association, The Nature Conservancy, and Ducks Unlimited, 2001. 

5

N. Ramankutty and J. E. Foley, “Estimating historical changes in land cover: North 

American croplands from 1850 to 1992,” Global Ecology and Biogeography, 8: 381-396

(1999). 

Page 34 GAO-07-1054 Agricultural Conservation
Appendix I: Objectives, Scope, and 

Methodology 

obtain their views of the importance of farm program payments and other 

factors in producers’ decisions to convert native grassland to cropland. 

To determine the impact the Sodbuster provision has had on grassland 

conversions, we examined NRI land use data for 1982 through 1997 and 

1997 through 2003 showing conversions of rangeland to highly erodible 

and non-highly erodible cropland by USDA crop production regions. We 

supplemented these data by analyzing available NRCS data on whether 

land that producers intended to convert was highly erodible for selected 

Nebraska counties.6

 We selected these counties because the Nebraska 

NRCS state office had identified them as being in areas that recently had

relatively high conversion rates. In addition, we conducted interviews with 

FSA and NRCS officials in Montana, Nebraska, North Dakota, and South 

Dakota to obtain their views of the impact of Sodbuster on producers’ 

conversion decisions. We compared information obtained in these 

interviews with comments on Sodbuster’s effectiveness submitted by 

NRCS field office officials in response to GAO’s nationwide 2002 survey on

conservation compliance issues.7

 We also interviewed FWS officials in 

Colorado, Montana, Nebraska, North Dakota, South Dakota, and Texas, as 

well as officials from industry stakeholder organizations, including the 

South Dakota Corn Growers Association, South Dakota Soybean 

Association, South Dakota Cattlemen’s Association, and Montana Grain 

Growers Association, to obtain their views on Sodbuster’s effectiveness 

and proposed legislative changes to reduce conversions. Finally, to 

identify proposed legislation that could affect payments that producers 

receive on newly converted land, we reviewed USDA’s 2007 farm bill 

proposals and position papers submitted by environmental, conservation, 

and commodity groups, including Ducks Unlimited, Pheasants Forever, 

the North Dakota and South Dakota Chapters of The Wildlife Society, the 

North Dakota Game and Fish Department, the American Farm Bureau 

 6

To qualify for farm program payments, a producer must certify compliance with 

conservation provisions. To qualify under Sodbuster provisions, a producer seeking to

convert previously uncropped land to cropland notifies FSA of that intention. FSA then

requests a determination for highly erodible land. According to FSA and NRCS officials,

after informing USDA of their intention to convert land, producers seldom decide not to

carry out the conversion. 

7

This survey was conducted in conjunction with our work on GAO-03-418. Specifically, in 

September 2002, we surveyed staff—usually the district conservationist—responsible for

the conservation compliance reviews in each of NRCS’s 2,549 field offices that conducted 

compliance reviews during the period 1998 through 2001 to obtain information on their 

understanding and implementation of conservation provisions, and their views on the

effectiveness of these provisions. 

Page 35 GAO-07-1054 Agricultural Conservation
Appendix I: Objectives, Scope, and 

Methodology 

Federation, the National Corn Growers Association, the National Pork 

Producers Council, and the National Association of Wheat Growers. 

We performed our work between October 2006 and August 2007 in 

accordance with generally accepted government auditing standards. We 

performed data reliability assessments for (1) FSA state office data on 

conversions of grassland that had no prior cropping history to cropland in 

Montana, North Dakota, and South Dakota, (2) crop insurance data from 

RMA’s Summary of Business database, and (3) FSA disaster assistance 

payments data. We determined that data from each of these sources were 

sufficiently reliable. For the data obtained from the other sources noted 

above, we did not independently verify the data, but we discussed with 

these sources, as appropriate, the measures they take to ensure the 

accuracy of these data. For the purposes for which the data were used in 

this report, these measures seemed reasonable. 

Page 36 GAO-07-1054 Agricultural Conservation
Appendix II: National Resources Inventory

Data on Net Changes in U.S. Land Use, 1982- Appendix II: National Resources Inventory 2003 

Data on Net Changes in U.S. Land Use, 1982-

2003 

The U.S. Department of Agriculture’s Natural Resource Conservation 

Service’s National Resources Inventory is a statistical survey of natural 

resource conditions and trends on nonfederal land in the United States. 

Nonfederal lands include privately owned lands, tribal and trust lands, and 

lands controlled by state and local governments. The NRI provides data on

net changes in rangeland, pastureland, and other land types over time, as 

well as on conversions of rangeland and pastureland to cropland over 

time.1

 Table 7 shows the net changes in cropland, Conservation Reserve 

Program (CRP) land, rangeland, pastureland, and developed land, from 

1982 to 2003 for the 48 contiguous states. The changes illustrated in the 

table are net changes, which do not indicate the number of acres 

converted from rangeland and pastureland to cropland. 

 1

Rangeland is a USDA land cover/use category on which the plant cover is composed 

principally of native grasses, grasslike plants, forbs or shrubs suitable for grazing, and

introduced forage species that are managed like rangeland, with little or no chemicals or 

fertilizer being applied. Grasslands, savannas, many wetlands, some deserts, and tundra are 

considered to be rangeland. Pastureland is a USDA land cover/use category of land 

managed primarily for the production of introduced forage plants for livestock grazing. 

Management of pastureland usually consists of treatments such as fertilization, weed 

control, reseeding or renovation, and control of grazing. Cropland is a USDA land cover/use 

category that includes areas used for the production of adapted crops for harvest. Two

subcategories of cropland are recognized: cultivated and noncultivated. Cultivated land 

comprises land in row crops or close-grown crops and also other cultivated cropland, for

example, hayland or pastureland that is in a rotation with row or close-grown crops. 

Noncultivated cropland includes permanent hayland and horticultural cropland. 

Page 37 GAO-07-1054 Agricultural Conservation
Appendix II: National Resources Inventory

Data on Net Changes in U.S. Land Use, 1982-

2003 

Table 7: Net Changes in Rangeland, Pastureland, and Other Land Types, 1982-2003

acres in millions with margins of error

Year Cropland CRP land Rangeland Pastureland Developed land

1982 419.9

(417.8-422.0) 

0

(NA)

415.5

(412.0-419.0)

131.1 

(129.7-132.5) 

72.9

(72.1-73.7)

1992 381.3

(379.3-383.3) 

34.0

(33.8-34.2)

406.8

(403.5-410.1)

125.2 

(123.9-126.5) 

86.5

(85.5-87.5)

1997 376.4 

(374.4-378.4) 

32.7

(32.7-32.7)

404.9

(401.6-408.2)

119.5 

(118.3-120.7) 

97.6

(96.6-98.6)

2003 367.9 

(365.5-370.3) 

31.5

(31.2-31.8)

405.1

(401.6-408.6)

117.0 

(115.2-118.8) 

108.1

(106.7-109.5)

Change,1982-2003 -52 31.5 -10.4 -14.1 35.2

Source: GAO’s analysis of NRCS’s NRI data.

Notes: (1) The amounts in parentheses represent the two-sided 95 percent confidence interval. (2) 

This table does not include other land-use categories, which did not have large changes during this 

period. These land-use categories are forest land, water areas, and other rural areas. 

Page 38 GAO-07-1054 Agricultural Conservation
Appendix III: Census of Agriculture Data on

Net Changes in Uses of Land in Farms for the Appendix III: Census of Agriculture Data on United States and Selected States 

Net Changes in Uses of Land in Farms for the 

United States and Selected States 

The Census of Agriculture, conducted every 5 years by USDA’s National 

Agricultural Statistics Service, is a census of agricultural producers.1

 It 

gathers information about the nation’s agricultural production and 

provides agricultural data for every state and county in the United States.

Tables 8 and 9 show net changes in uses of land in farms between the 

years 1978 and 1992, and 1997 and 2002, as reported by the Census of 

Agriculture. Table 8 shows net changes in land use at the national level, 

while table 9 shows changes in land use for states that—according to 

USDA’s National Resources Inventory—have large amounts of rangeland

and cropland. Data for 1978 to 1992 are not comparable to data for 1997 to 

2002 and are listed separately in the tables. This is because a different 

methodology was used for the latter time frame to more completely 

capture all relevant producers. 

In tables 8 and 9, “Total cropland” includes cropland harvested, cropland

used only for pasture or grazing, idle cropland,2

 cropland on which all 

crops failed or were abandoned, and cropland cultivated in summer 

fallow. “Pastureland and rangeland” includes all grazable land that does 

not qualify as cropland pasture or woodland pasture. Pastureland and 

rangeland includes both native grassland and grassland composed of 

introduced grasses. Finally, “Total land in farms” consists primarily of 

agricultural land used for crops, pasture, or grazing. 

 1

Between 1840 and 1996, the U.S. Department of Commerce, Bureau of the Census was 

responsible for collecting Census of Agriculture data. The Census of Agriculture Act, Pub.

L. No. 105-113, 111 Stat. 2274 (1997), transferred the responsibility for the Census of 

Agriculture from the Bureau of the Census to the Secretary of Agriculture who 

subsequently delegated that responsibility to the Administrator of NASS. 

2

Idle cropland includes Conservation Reserve Program land unless the land was used for 

haying or grazing. 

Page 39 GAO-07-1054 Agricultural Conservation
Appendix III: Census of Agriculture Data on

Net Changes in Uses of Land in Farms for the 

United States and Selected States 

Table 8: Net Changes in Uses of Land in U.S. Farms, 1978-1992 and 1997-2002 

acres in millions

Year 

Total

cropland

Pastureland and

rangelanda

Total land in

farms

1978 453.6 431.0 1011.5

1982 445.1 416.0 983.5

1987 442.9 408.4 961.8

1992 435.0 409.1 943.0

Change in acres,1978-

1992 -18.6 -21.9 -68.5

1997 444.9 396.6 952.5

2002 433.9 393.7 936.1

Change in acres, 1997-

2002 -11.0 -2.9 -16.5

Source: GAO’s analysis of NASS’s Census of Agriculture data. 

a

The full name of this category is Pastureland and rangeland, other than cropland and woodland 

pastured. 

Table 9: Net Changes in Uses of Land in Farms in States with Large Amounts of Rangeland and Pastureland, 1978-1992 and 

1997-2002 

acres in millions

State Year Total cropland Pastureland and rangeland Total land in farms 

Colorado 1978 10.6 22.7 35.3

 1992 10.9 21.3 34.0

 Change in acres, 1978-1992 0.3 -1.4 -1.3

1997 10.8 19.4 32.3

2002 11.5 17.3 31.1

Change in acres, 1997-2002 0.7 -2.1 -1.3

Kansas 1978 29.8 15.5 47.5

 1992 31.1 13.8 46.7

 Change in acres, 1978-1992 1.3 -1.8 -0.8

1997 31.1 13.6 46.7

2002 29.5 15.5 47.2

Change in acres, 1997-2002 -1.5 1.9 0.6

Montana 1978 16.2 42.4 61.7

 1992 17.5 39.3 59.6

 Change in acres, 1978-1992 1.3 -3.1 -2.0

1997 18.2 37.2 58.4

Page 40 GAO-07-1054 Agricultural Conservation
Appendix III: Census of Agriculture Data on

Net Changes in Uses of Land in Farms for the 

United States and Selected States 

acres in millions

State Year Total cropland Pastureland and rangeland Total land in farms 

2002 18.3 38.2 59.6

Change in acres, 1997-2002 0.8 1.1 1.2

Nebraska 1978 22.3 22.1 46.1

 1992 22.4 20.6 44.4

 Change in acres, 1978-1992 0.1 -1.6 -1.7

 1997 22.6 21.6 45.9

2002 22.5 21.9 45.9

Change in acres, 1997-2002 -0.1 0.3 0.05

New Mexico 1978 2.3 42.5 47.9

 1992 2.3 42.0 46.8

 Change in acres, 1978-1992 -0.004 -0.5 -1.1

 1997 2.3 41.0 46.2

2002 2.6 39.1 44.8

Change in acres, 1997-2002 0.3 -1.8 -1.4

North Dakota 1978 28.6 10.8 41.7

 1992 27.5 10.3 39.4

 Change in acres, 1978-1992 -1.1 -0.5 -2.3

1997 27.4 10.3 39.7

2002 26.5 11.0 39.3

Change in acres, 1997-2002 -0.9 0.7 -0.4

Oklahoma 1978 14.4 16.5 33.7

 1992 14.5 15.1 32.1

 Change in acres, 1978-1992 0.2 -1.5 -1.6

1997 15.5 15.5 34.1

2002 14.8 15.7 33.7

Change in acres, 1997-2002 -0.6 0.2 -0.4

South Dakota 1978 18.7 24.2 44.4

 1992 19.6 23.9 44.8

 Change in acres, 1978-1992 0.8 -0.2 0.4

1997 19.7 23.0 44.1

2002 20.3 22.0 43.8

Change in acres, 1997-2002 0.6 -1.0 -0.4

Texas 1978 39.4 87.3 135.6

 1992 36.4 87.8 130.9

 Change in acres, 1978-1992 -3.0 0.5 -4.7

1997 39.1 86.9 134.0

Page 41 GAO-07-1054 Agricultural Conservation
Appendix III: Census of Agriculture Data on

Net Changes in Uses of Land in Farms for the 

United States and Selected States 

acres in millions

State Year Total cropland Pastureland and rangeland Total land in farms 

2002 38.7 83.4 129.9

Change in acres, 1997-2002 -0.4 -3.5 -4.1

Wyoming 1978 2.7 30.1 33.6

 1992 2.8 28.9 32.9

Change in acres, 1978-1992 0.1 -1.2 -0.8

1997 3.0 30.2 34.3

2002 3.0 30.2 34.4

Change in acres, 1997-2002 0.0 0.1 0.1

Source: GAO’s analysis of NASS’s Census of Agriculture data. 

Page 42 GAO-07-1054 Agricultural Conservation
Appendix IV: Partial Budget Analysis for a 

Proposed Conversion of Native Grassland to Appendix IV Cropland in Central South Dakota, 2003-2007 : Partial Budget Analysis for a 

Proposed Conversion of Native Grassland to 

Cropland in Central South Dakota, 2003-2007 

To assess the economic incentives to convert native grassland to cropland 

at the farm level, we used a partial budget analysis and a “constructed” 

farm scenario for a 160-acre tract in Hand County, South Dakota—a 

central South Dakota county that was relatively high in 2005 and 2006 

conversions of grassland that had no cropping history. A partial budget

can be used by a farmer or rancher to evaluate the economic effects of 

making an adjustment to a part of the farm operation, such as switching to 

an alternative farm enterprise or buying new machinery. While not 

including all farm costs and revenues of the enterprise, a partial budget1

estimates the net change in income that results when shifting from a base 

plan to an alternative scenario.2

Livestock grazing enterprises, in particular cow-calf operations, have 

historically been typical farm enterprises in South Dakota. In recent years, 

however, some of the land that was used for grazing has been converted to 

crop production. To analyze the role of farm program payments in these 

conversions, we developed a partial budget to compare the estimated 

costs and returns for 2003 through 2007 from 160 acres of native 

grassland—used for grazing as part of a cow-calf operation—to the costs 

and returns that would have resulted if the 160 acres had been converted

to cropland in 2003 and used to produce corn, soybeans, and wheat 

through 2007. We assumed that the farm operation initially consisted of 

both a cropping enterprise and a cow-calf enterprise. Therefore, the 

farmer already had certain fixed capital equipment for both of these 

enterprises, such as tractors and harvesting equipment. In the base plan, 

the producer had a 160-acre parcel of native grassland that was part of a 

larger cow-calf grazing enterprise. 

We analyzed cow-calf and crop budgets (1) prospectively for the current 

2007 crop year and (2) retrospectively for crop years 2003 through 2006 to

specifically evaluate the effects of past farm program payments on costs 

and returns. During these years, crop and calf prices varied and central 

South Dakota experienced a range of weather conditions that affected

 1

Michael D. Boehlje and Vernon R. Eidman, Farm Management, John Wiley & Sons, New

York, 1984, pp. 237-242. 

2

Specifically, a partial budget analysis examines the additional returns that would result 

from adopting an alternative plan plus the decreased costs from no longer using a base

plan, minus the sum of the additional costs of the alternative plan plus the reduced returns

from the base plan. The partial budget only considers the direct private costs and benefits 

to the farmer and does not include the social costs and benefits to society that a change

would bring about, such as to the environment or wildlife habitat. 

Page 43 GAO-07-1054 Agricultural Conservation
Appendix IV: Partial Budget Analysis for a 

Proposed Conversion of Native Grassland to 

Cropland in Central South Dakota, 2003-2007 

crop and forage production. These changes in price and production make 

these years illustrative for analysis of the effect farm program payments 

can have on farm enterprises. 

We found that for certain years, high crop prices as well as farm program 

payments would provide economic incentives for a producer to convert 

native grassland used for grazing in a cow-calf operation to an alternative 

cropping operation. In 3 of the 5 years, the conversion from grazing to 

cropping would have resulted in increased income. In the other 2 years, 

2004 and 2005, when cattle prices and returns were high relative to crop 

prices and returns and total farm program payments were lower, it would 

have been more profitable not to convert and continue the cow-calf 

operation. Without any farm program payments, income would have 

increased only in 2007, but in view of projections that crop prices will 

remain relatively high, this increase in income without farm program 

payments may continue for several years. However, even with high crop 

prices, farm program payments for crop insurance and crop disaster 

assistance will continue to be an important factor in conversion decisions 

because of the need for protection against adverse crop production risks, 

such as drought. 

Base Plan Scenario—CowCalf Grazing 

For the base plan or cow-calf section of the analysis, we used production 

and price data from South Dakota State University’s cow-calf budget tool3

as well as expert opinion from South Dakota State University livestock 

extension economists and USDA Natural Resources Conservation Service 

officials in South Dakota. We assumed that Hand County, South Dakota, in

a normal year of precipitation, would support one cow-calf pair for every 8 

acres of native grassland. Since South Dakota experienced varied weather 

conditions—including drought—during 2003 through 2007, we adjusted 

our cow-calf model to incorporate changes in the number of pounds of 

calves and cows sold to account for changes in the amount of forage 

available for grazing on the 160 acres. These adjustments were based on 

NRCS rangeland forage production values for favorable, normal, and 

unfavorable years.4

 On the basis of South Dakota NRCS officials’ expert 

 3

South Dakota State University, Department of Economics, Extension, Management Tools 

and Links, Livestock Budgets, Beef Cow Unit, Feeder Calf Sold, (B1CC).

http://econ.sdstate.edu/Extension/Tools/budgets.htm. 

4

These rangeland production values are from the NRCS Web Soil Survey.

www.websoilsurvey.nrcs.usda.gov/app/. 

Page 44 GAO-07-1054 Agricultural Conservation
Appendix IV: Partial Budget Analysis for a 

Proposed Conversion of Native Grassland to 

Cropland in Central South Dakota, 2003-2007 

opinion, we assumed that a 20 percent deviation in annual rainfall above 

or below the 30-year average during 1976 through 2006 would be either 

favorable or unfavorable, respectively. Using this definition, 2003 forage 

production values were normal, 2004 were favorable, 2005 were normal, 

and 2006 were unfavorable. We assumed 2007 forage production values 

were normal based on South Dakota NRCS officials’ observations as of 

July 2007. 

In estimating cow-calf returns, we used calf prices from South Dakota 

State University’s stocker cattle prices (500 to 600 pounds), monthly 

average prices, for November. For cull cow prices, we used the Sioux Falls 

price of slaughter cows for November 2003 through 2006; for 2007, we 

used an average of the first 5 months of the year. For additional income 

due to herd liquidation, we obtained yearly average “Bred Female” prices, 

Central Region, for “young and middle-aged cows” from Drovers for 2003 

through 2006 and the first 5 months of 2007.5

 For corn feed costs, we 

calculated an average price for each year, 2003 through 2006, based on 

weekly Central South Dakota cash corn prices from South Dakota State 

University’s extension service; for 2007, we calculated an average of these 

weekly prices from January to July. For hay alfalfa prices, we used USDA 

National Agricultural Statistics Service yearly average prices for 2003 

through 2006, and for 2007, an average monthly price based on the first 5

months of this year. Regarding “other” costs, we reduced all direct costs in 

the cow-calf spreadsheet before 2005 by 10 percent, with the exception of 

“Veterinary and Drug,” which we reduced by 15 percent, and kept all the 

later years the same as in the budget tool spreadsheet.6

Alternative Scenario—

Corn/Soybean/Spring 

Wheat Cropping Rotation 

For the alternative scenario—the crop portion of the partial budget 

analysis, we assumed a corn/soybean/spring wheat crop rotation on the 

160-acre parcel for a farm in Hand County, South Dakota. We assumed this 

particular crop rotation based on those crops having the highest acreages 

according to NASS statistics and consultations with South Dakota State 

University crop extension experts. We first looked retrospectively at the 

time period from 2003 through 2006 to see the effects of prices, yields, and 

 5

Drovers is a monthly magazine and online livestock information service that provides

business management and marketing information for all segments of the beef industry,

including the female market, fed-cattle markets, and stocker/feeder prices. 

6

These “other costs,” such as veterinary and medicine, were obtained from a South Dakota

State University Extension area farm management specialist. 

Page 45 GAO-07-1054 Agricultural Conservation
Appendix IV: Partial Budget Analysis for a 

Proposed Conversion of Native Grassland to 

Cropland in Central South Dakota, 2003-2007 

farm payments on costs and returns. We then used preliminary data for 

crop prices and average historical yield data to examine potential returns 

for crop year 2007.7

For 2003 through 2007, we adjusted all yield data to reflect the fact that 

this newly converted land may represent “marginal” or less productive 

land than the land that was already in crop production. To do this, we 

consulted with NRCS officials in central South Dakota to obtain 

information on the soil types that were most often being converted.8

 On 

the basis of this information, we then adjusted the county average crop 

yields for corn, soybeans, and spring wheat to estimate a likely yield for a 

newly converted parcel of native grassland for a particular year. On 

average, these estimated yields were about 17 percent lower than the 

county average yields. We used these adjusted yields in our calculation of 

gross income from corn, soybeans, and spring wheat in our partial budget

analysis. In addition, because documentation on the soil types most often 

being converted was not available and to determine how sensitive our 

results were to these adjusted crop yields, we also estimated gross returns 

from crop production in our partial budget analysis using unadjusted 

NASS county average crop yields for 2003 through 2006. For 2007, we 

estimated an unadjusted 3-year moving county average for corn and 

soybeans, and for spring wheat, we used the South Dakota NASS yield 

projection as of July 2007. 

We obtained the remaining data on prices and costs for the crop analysis 

from extension specialists and agricultural economists in central South 

Dakota and at South Dakota State University.9

 For instance, we obtained

most of the cost data for the crop budgets from an area farm management 

specialist in the Department of Economics at South Dakota State 

University. For price data, we used yearly average central South Dakota

cash prices for corn, soybeans, and spring wheat for 2003 through 2006 

 7

Also, since the 2007 crop has not been harvested, we assumed a 3-year moving average

county yield from NASS statistics, adjusted by expert opinion from our interviews with 

South Dakota soil scientists. 

8

Per our discussions with NRCS officials concerning Hand County, South Dakota, the soil 

types most likely to be converted were: ErB (Eakin-Raber Complex-Undulating), HkB

(Houdek-Prosper Loams, Undulating), RaB (Raber Loams, Undulating), ReB (Raber-Eakin

Complex, Undulating), WmB (Glenham Loam, Undulating), WpB (Glenham-Cavo, 

Undulating), and WzC (Glenham-Java, Rolling). 

9

For the cost estimates, we assumed that the cropping enterprise used no-till treatment

rather than conventional tillage. 

Page 46 GAO-07-1054 Agricultural Conservation
Appendix IV: Partial Budget Analysis for a 

Proposed Conversion of Native Grassland to 

Cropland in Central South Dakota, 2003-2007 

from South Dakota State University’s extension grain marketing specialist. 

For 2007 price data, we used the most recent statewide average cash price, 

as of July 13, for South Dakota for corn, soybeans, and spring wheat. For 

2003 through 2006 loan deficiency payments, we used Hand County 

average yearly loan deficiency payments for this period from the USDA 

Farm Service Agency’s South Dakota state office.10 For crop insurance 

payments to farmers, we used crop insurance indemnity payments per 

acre in Hand County, South Dakota as estimated by a USDA Risk 

Management Agency official. For crop disaster assistance payments, we 

used data from FSA on crop disaster assistance payments by county to 

estimate an average crop disaster assistance payment per acre for Hand 

County for 2003, the only year when these payments were significant.11

Because crop insurance indemnity and crop disaster assistance payments 

generally are related to the same crop losses, we used RMA crop insurance 

indemnity payments data in making this estimate. Specifically, we applied 

the proportion of the amount of crop insurance indemnities that were paid

to each crop (i.e., corn, soybeans, and spring wheat) to the total crop 

disaster assistance payments in the county for 2003 to estimate the crop 

disaster assistance payment for each crop. 

In addition to income from crop production, the producer’s additional 

returns in the first year of conversion would be from the sale or liquidation

of the herd that had grazed on the 160-acre parcel. Specifically, we 

assumed the conversion takes place in 2003, and the herd liquidation in a 

normal year would consist of about 20 bred females that previously grazed

on the land, of which 10 would be sold in the bred female market and 10 in

the cull cow market since the cow herd would be composed of various 

ages. In order not to disproportionately influence any one year’s returns 

from the herd liquidation, the proceeds were amortized over a 5-year 

period, from 2003 to 2007, at an interest rate of 6 percent, resulting in 

annual revenue of about $3,125. Similarly, as part of the conversion, we 

also assumed conversion costs for the 160-acre parcel of land, consisting

of about $3,200 for herbicide treatment, would be amortized over this 

period, resulting in an annual cost of about $760. According to NRCS 

 10Land newly converted into cropland would only qualify for marketing assistance benefits, 

such as loan deficiency payments, and would not be eligible for countercyclical payments

or direct payments since the land would not have a cropping history. 

11May 2007 supplemental appropriation legislation authorized crop disaster assistance 

payments for crop years 2005, 2006, and early 2007. Producers can receive a disaster 

assistance payment for only one of the 3 years. Because these payments had not been made 

as of July 2007, we did not include estimates of them in our analysis. 

Page 47 GAO-07-1054 Agricultural Conservation
Appendix IV: Partial Budget Analysis for a 

Proposed Conversion of Native Grassland to 

Cropland in Central South Dakota, 2003-2007 

officials, rock removal can also add to conversion costs, but these costs 

are highly variable because the amount of rocks on native grass and the 

methods used in removing them varies. Thus, we did not include rock 

removal in our partial budget analysis. 

As noted, we assumed the conversion to cropland occurred in 2003. The 

use of another year for the conversion would have some effect on the 

results. For example, if the conversion had occurred in 2004, a year of 

relatively high cattle prices and better forage available for grazing, the 

revenue from the cow liquidation would have been greater. In that year, 

the amortized annual value from the sale of the cow herd would have been 

$4,284, about $1,158 greater than in 2003. Thus, the annual net change in 

income resulting from the conversion to cropland would have been about 

$1,158 higher. 

Partial Budget Analysis After creating the base plan and alternative scenario and collecting the 

appropriate data for the 5 years, we then used these data in the partial 

budget to analyze the role of farm program payments in conversion 

decisions and determine which option, the cow-calf enterprise or the 

cropping enterprise, would provide higher returns over costs. Specifically, 

as table 10 shows, the alternative scenario—conversion to cropland—

would result in additional returns from crop production, farm program 

payments, and the sale of the cow herd (Section 1), reduced costs from no 

longer having the present cow-calf enterprise (Section 2), additional costs 

from crop production (including conversion costs) (Section 3), and 

reduced returns from the cow-calf enterprise (Section 4). Therefore, in the 

partial budget analysis, the net change in income for the producer would 

be the total benefits of the proposed change (Sections 1 and 2) minus the 

total costs (Sections 3 and 4). 

The partial budget results for crop years 2003 through 2006 are shown in 

table 10. For each year, we estimated the net change in income using crop 

yields adjusted for soil productivity. As noted earlier, we also estimated 

these income changes using unadjusted NASS county average crop yields. 

In 2003, the sum of gross revenue from the sale of crops produced, farm 

program payments (crop insurance, crop disaster assistance, and loan 

deficiency payments), and the amortized proceeds from the liquidation of

the cow herd would have resulted in a positive change in net income of 

$3,761 in favor of the alternative scenario, crop production using the 

adjusted crop yields. Although 2003 cash corn prices were at relatively 

average historical levels, $2.36 per bushel, and soybean prices were high, 

averaging about $7.70 per bushel, yields were at very low levels resulting 

Page 48 GAO-07-1054 Agricultural Conservation
Appendix IV: Partial Budget Analysis for a 

Proposed Conversion of Native Grassland to 

Cropland in Central South Dakota, 2003-2007 

in relatively low crop revenue. However, farm program payments would 

have offset this low crop revenue, contributing approximately $12,300 on

the 160-acre tract. Without these farm program payments, net income from 

the base plan, the cow-calf enterprise, would have been about $8,500 

greater than crop production in this year. Using the unadjusted county 

average, crop yields would have produced a net change in income of about 

$6,824 in favor of the cropping alternative. 

For 2004, we estimate net income of about $3,602 in favor of remaining 

with the base plan, the cow-calf enterprise. Although crop yields were 

relatively high in 2004, corn and soybean prices were much lower than the 

previous year, at $1.64 and $5.49, respectively. Also, the total of crop 

insurance, crop disaster assistance, and loan deficiency payments for this 

year were almost $9,000 lower than in 2003. Although loan deficiency

payments were higher due to the lower crop prices, crop insurance 

benefits were lower due to the higher crop yields, and crop disaster 

assistance payments would not have been made because, as provided in 

the legislation, the producer could only receive a crop disaster assistance 

payment for 2003 or 2004 and could not receive a payment for both years. 

Moreover, 2004 cow-calf returns were relatively high, as calf prices had 

increased over 2003, going from an average of $111 to $122 per 

hundredweight. In addition, we estimate higher returns to the cow-calf 

enterprise in this year due to more favorable weather for forage 

production and lower prices for feedstuffs. Furthermore, direct costs of 

production for the cow-calf enterprise (about $6,500) were about one-third 

that of the costs of production for the cropping enterprise (about $19,500). 

However, using unadjusted county average yields to estimate gross 

revenue causes the alternative scenario, conversion to cropland, to be 

higher in net income, but only by about $1,375. 

Similarly, for 2005, we estimate that net income from the alternative 

scenario, crop production, with yields adjusted for soil productivity would 

have been about $4,835 less than the base plan, the cow-calf enterprise. 

The net change in income using the unadjusted county average crop yields 

would have been higher for the alternative scenario by about $90. In 2005,

crop yields were similar to those in 2004, but crop prices were again quite 

low. At the same time, calf prices were at historically high levels—$137 per 

hundredweight. Feedstuff costs, due to the low corn prices, were relatively 

low, and the costs of production for cropping were over three times 

greater than costs for the cow-calf enterprise. Also, in 2005, while some 

loan deficiency payments ($2,175 for the 160-acre parcel) were received, 

crop insurance payments, about $625 for the parcel, were much lower than 

Page 49 GAO-07-1054 Agricultural Conservation
Appendix IV: Partial Budget Analysis for a 

Proposed Conversion of Native Grassland to 

Cropland in Central South Dakota, 2003-2007 

the previous year, and no crop disaster assistance payments had been

received as of July 2007.

For 2006, we estimate an increase net income of about $2,366 in favor of

the alternative scenario, crop production. Although crop yields were very 

low due to drought, crop prices increased. Average cash corn prices for 

Central South Dakota jumped from $1.76 per bushel in 2005 to $3.37 per 

bushel in 2006. More importantly, however, due to the low yields that year, 

the producer would have received about $8,995 on the 160-acre parcel

from crop insurance payments.12 At the same time, cow-calf returns 

decreased because of decreases in calf and cow prices and unfavorable 

conditions for forage production because of the drought. This reduced 

forage production would result in lower calf weights and higher feed costs 

for the cow-calf enterprise. Using the unadjusted NASS county average 

crop yields would have increased the net income change to about $6,069. 

Table 10: Partial Budget Analysis for a Proposed 2003 Change from a Cow-Calf 

Enterprise to a Corn/Soybean/Wheat Cropping Enterprise in Central South Dakota,

2003-2006 

Partial budget, 2003 

Amount of change

Adjusted crop yields

County average crop 

yields

Section 1 

Additional returns from 

proposed change

Corn $4,666.73 $5,610.14

Soybeans 4,063.06 4,883.88

Spring wheat 6,120.97 7,349.00

Loan deficiency payment 351.14 421.71

Crop insurance payment 7,895.33 7,895.33

Disaster assistance payment 4,014.02 4,014.02

Liquidation of cow herd 

(amortized) 

3,125.23 3,125.23

Subtotal additional returns $30,236.49 $33,299.32

 12Crop disaster assistance payments, which likely will be made for the 2006 crop year, are

not included in this analysis. 

Page 50 GAO-07-1054 Agricultural Conservation
Appendix IV: Partial Budget Analysis for a 

Proposed Conversion of Native Grassland to 

Cropland in Central South Dakota, 2003-2007 

Section 2 

Reduced costs from proposed

change

Reduced costs from cow-calf 

operation 

$5,473.62 $5,473.62

Subtotal reduced costs $5,473.62 $5,473.62

Section 3 

Additional costs of proposed

change

Corn $7,330.88 $7,330.88

Soybeans 4,770.35 4,770.35

Spring wheat 5,039.52 5,039.52

Herbicide treatment for 

conversion (amortized) 

759.67 759.67

Subtotal additional costs $17,900.42 $17,900.42

Section 4 

Reduced returns from 

proposed change

Sale of calves and cull cows in a 

year with normal forage

production 

$14,048.49 $14,048.49

Subtotal reduced returns $14,048.49 $14,048.49

Net change in income, 2003 $3,761.20 $6,824.03

Partial budget, 2004 

Amount of change

Adjusted crop yields

County average crop 

yields

Section 1 

Additional returns from 

proposed change

Corn $7,377.57 $8,863.58

Soybeans 7,373.95 8,866.30

Spring wheat 8,029.96 9,662.22

Loan deficiency payment 1,817.32 2,184.39

Crop insurance payment 1,211.51 1,211.51

Disaster assistance payment — —

Liquidation of cow herd 

(amortized) 

3,125.23 3,125.23

Page 51 GAO-07-1054 Agricultural Conservation
Appendix IV: Partial Budget Analysis for a 

Proposed Conversion of Native Grassland to 

Cropland in Central South Dakota, 2003-2007 

Subtotal additional returns $28,935.54 $33,913.23

Section 2 

Reduced costs from proposed

change

Reduced costs from cow-calf 

operation 

$6,570.14 $6,570.14

Subtotal reduced costs $6,570.14 $6,570.14

Section 3 

Additional costs of proposed

change

Corn $8,568.51 $8,568.51

Soybeans 4,796.47 4,796.47

Spring wheat 6,163.61 6,163.61

Herbicide treatment for 

conversion (amortized) 

759.67 759.67

Subtotal additional costs $20,288.26 $20,288.26

Section 4 

Reduced returns from 

proposed change

Sale of calves and cull cows in a 

year with favorable forage 

production 

$18,820.18 $18,820.18

Subtotal reduced returns $18,820.18 $18,820.18

 Net change in income, 2004 ($3,602.75) $1,374.94

Partial budget, 2005 

Amount of change

Adjusted crop yields

County average crop 

yields

Section 1 

Additional returns from 

proposed change

Corn $7,617.21 $9,155.66

Soybeans 7,416.70 8,927.00

Spring wheat 7,079.57 8,516.01

Loan deficiency payment 2,174.75 2,614.15

Crop insurance payment 625.21 625.21

Page 52 GAO-07-1054 Agricultural Conservation
Appendix IV: Partial Budget Analysis for a 

Proposed Conversion of Native Grassland to 

Cropland in Central South Dakota, 2003-2007 

Disaster assistance payment — —

Liquidation of cow herd 

(amortized) 

3,125.23 3,125.23

Subtotal additional returns $28,038.66 $32,963.26

Section 2 

Reduced costs from proposed

change

Reduced costs from cow-calf 

operation 

$5,737.80 $5,737.80

Subtotal reduced costs $5,737.80 $5,737.80

Section 3 

Additional costs of proposed

change

Corn $9,187.85 $9,187.85

Soybeans 5,344.39 5,344.39

Spring wheat 6,459.43 6,459.43

Herbicide treatment for 

conversion (amortized) 

759.67 759.67

Subtotal additional costs $21,751.34 $21,751.34

Section 4 

Reduced returns from 

proposed change

Sale of calves and cull cows in a 

year with normal forage

production 

$16,859.78 $16,859.78

Subtotal reduced returns $16,859.78 $16,859.78

Net change in income, 2005 ($4,834.66) $89.94

Partial budget, 2006 

Amount of change

Adjusted crop yields

County average crop 

yields

Section 1 

Additional returns from 

proposed change

Corn $7,454.27 $8,963.09

Soybeans 5,632.64 6,752.58

Page 53 GAO-07-1054 Agricultural Conservation
Appendix IV: Partial Budget Analysis for a 

Proposed Conversion of Native Grassland to 

Cropland in Central South Dakota, 2003-2007 

Spring wheat 5,197.82 6,252.09

Loan deficiency payment 100.26 120.19

Crop insurance payment 8,995.44 8,995.44

Disaster assistance payment — —

Liquidation of cow herd 

(amortized) 

$3,125.23 $3,125.23

Subtotal additional returns $30,505.65 $34,208.62

Section 2 

Reduced costs from proposed

change

Reduced costs from cow-calf 

operation 

$4,609.36 $4,609.36

Subtotal reduced costs $4,609.36 $4,609.36

Section 3 

Additional costs of proposed

change

Corn $9,707.00 $9,707.00

Soybeans 5,617.82 5,617.82

Spring wheat 7,043.06 7,043.06

Herbicide treatment for 

conversion (amortized) 

759.67 759.67

Subtotal additional costs $23,127.55 $23,127.55

Section 4 

Reduced returns from 

proposed change

Sale of calves and cull cows in a 

year with unfavorable forage

production 

$9,621.12 $9,621.12

Subtotal reduced returns $9,621.12 $9,621.12

 Net change in income, 2006 $2,366.35 $6,069.31

Source: GAO’s analysis based on data provided by and consultations with South Dakota State University, FSA, NASS, NRCS, and 

RMA. Partial budget template used by permission of the Agricultural Economics Department, University of Missouri.

Page 54 GAO-07-1054 Agricultural Conservation
Appendix IV: Partial Budget Analysis for a 

Proposed Conversion of Native Grassland to 

Cropland in Central South Dakota, 2003-2007 

Notes: (1) We calculated returns and costs assuming conversion of native grassland to cropland on a 

“constructed” farm in Hand County, South Dakota that produced a rotation of corn, soybeans, and

spring wheat. (2) For the crop enterprise, we used regional average crop prices; NASS county 

average crop yields, both adjusted and unadjusted for soil productivity; central South Dakota region 

crop production cost data; and county average crop insurance, and crop disaster assistance, and 

loan deficiency payments. We used assumptions and data provided by agricultural economists, 

agronomists, and soil scientists from South Dakota State University and NASS to estimate yields and 

conversion costs. Farm program payments data were provided by FSA and RMA officials. (3) Data 

and assumptions for the cow-calf enterprise are from South Dakota State University extension service 

in the central and eastern regions and NRCS officials in South Dakota. We did not include in our 

analysis the benefits from any livestock disaster assistance payments, although we realize there were 

such payments in 2004. For feed prices, we used average weekly cash corn prices for the Central 

region of South Dakota, from the South Dakota State University extension service and yearly NASS

prices for alfalfa hay. (4) The dashes indicate that we did not include a crop disaster assistance 

payment for 2004, 2005, or 2006.

We also estimated the income effects of converting native grassland to 

crop production prospectively for the current 2007 crop year. As table 11 

shows for 2007, we estimate that the net change in income for the 

alternative scenario, crop production, would be about $2,099. Also, in this 

high price year for crops, the value of production from the cropping 

enterprise would be about $15,000 more than from the cow-calf enterprise. 

An important factor for the cow-calf enterprise during this year would be 

the adjustment to much higher feed prices, which along with lower calf 

prices, would lead to lower cow-calf returns in 2007. On the crop side, 

because 2007 crop prices are forecast to stay above the marketing loan

rates, we assumed no loan deficiency payments would be received for this 

year. In addition, we did not include any crop insurance or disaster 

assistance payments for 2007, although such payments may be made in the 

future. Despite the absence of farm program payments, the partial budget

demonstrates that in this high crop price year crop production would have 

been more profitable than using the land for grazing cattle. Using the 

unadjusted 2007 projected county average yields would increase the net

income resulting from the conversion to cropland to about $8,290. 

Page 55 GAO-07-1054 Agricultural Conservation
Appendix IV: Partial Budget Analysis for a 

Proposed Conversion of Native Grassland to 

Cropland in Central South Dakota, 2003-2007 

Table 11: Partial Budget Analysis for a Proposed 2003 Change from a Cow-Calf 

Enterprise to a Corn/Soybean/Wheat Cropping Enterprise in Central South Dakota,

2007 

Partial budget, 2007 

Amount of change

Adjusted crop yields

Projected and average 

crop yields

Section 1 

Additional returns from 

proposed change

Corn $12,951.13 $15,566.50

Soybeans 8,335.76 10,018.18

Spring wheat 9,382.80 11,276.15

Loan deficiency payment — —

Crop insurance payment — —

Disaster assistance payment — —

Liquidation of cow herd 

(amortized) 

3,125.23 3,125.23

Subtotal additional returns $33,794.92 $39,986.06

Section 2 

Reduced costs from

proposed change

Reduced costs from cow-calf 

operation 

$7,187.80 $7,187.80

Subtotal reduced costs $7,187.80 $7,187.80

Section 3 

Additional costs of

proposed change

Corn $9,726.18 $9,726.18

Soybeans 5,573.05 5,573.05

Spring wheat 7,324.49 7,324.49

Herbicide treatment for 

conversion (amortized) 

759.67 759.67

Subtotal additional costs $23,383.39 $23,383.39

Page 56 GAO-07-1054 Agricultural Conservation
Appendix IV: Partial Budget Analysis for a 

Proposed Conversion of Native Grassland to 

Cropland in Central South Dakota, 2003-2007 

Section 4 

Reduced returns from 

proposed change

Sale of calves and cull cows 

in a year with unfavorable 

forage production $15,499.86 $15,499.86

Subtotal reduced returns $15,499.86 $15,499.86

Net change in income, 2007 $2,099.47 $8,290.61

Source: GAO’s analysis based on data provided by and consultations with South Dakota State University extension service, NASS, and 

NRCS. Partial budget template used by permission of the Agricultural Economics Department, University of Missouri. 

Notes: (1) We calculated returns and costs assuming conversion of native grassland to cropland on a 

“constructed” farm in Hand County, South Dakota, that produced a rotation of corn, soybeans, and

spring wheat. (2) For the crop enterprise, we used regional average crop prices for January to July 

2007; a 3-year moving average of NASS county average crop yields, adjusted and unadjusted for soil 

productivity for corn and soybeans and a projected 2007 South Dakota yield for spring wheat, 

adjusted and unadjusted for soil productivity; and central South Dakota regional crop production cost 

data. We used assumptions and data provided by NRCS officials to estimate conversion costs. (3) 

Data and assumptions for the cow-calf enterprise are from South Dakota State University extension 

service in the central and eastern regions and NRCS officials in South Dakota. For 2007, we used 

2007 average weekly cash corn prices for the central region of South Dakota from January to July 

from the South Dakota State University extension service and January to June average monthly 

NASS prices for alfalfa hay. (4) The dashes indicate that no loan deficiency payments would be

received for 2007 and that we did not include any crop insurance or disaster assistance payments for 

this year, although such payments may be made in the future. 

In summary, if South Dakota corn, soybean, and wheat prices stay at 

relatively high levels, as forecast by USDA national price projections, 

incentives for conversion should continue in the near future.13 In addition, 

as the retrospective analysis suggests, farm program payments, especially

crop insurance and crop disaster assistance payments, lower the risk of 

negative returns in years with low crop yields. 

 13USDA Agricultural Projections to 2016, Interagency Agricultural Projections Committee, 

Long Term Projections Report OCE-2007-1, (Washington, D.C., February 2007). 

Page 57 GAO-07-1054 Agricultural Conservation
Appendix V: Summaries of Economic Studies

Examining the Impact of Farm Program 

Payments 

We identified and reviewed 15 studies that analyze the potential economic

impacts of federal farm program payments on either producers’ land use 

decisions or farm profitability and risk. The impact of farm program 

payments on farm profitability and risk is closely related to land use 

decisions. Table 12 summarizes the 15 studies, including the purpose and 

results associated with each. 

Table 12: Economic Studies That Analyze the Impact of Federal Farm Program Payments on Either Producers’ Land Use 

Decisions or Farm Profitability and Risk 

Economic study Purpose of the study Year Related findings and conclusions

Janssen, Larry, Burton Pflueger, and Terry 

Ahrendt. South Dakota Agricultural Land 

Market Trends, 1991-2007. South Dakota 

State University Agricultural Experiment 

Station, USDA.

To report on current agricultural 

land values and cash rental

rates by land use in different 

regions in South Dakota. 

2007 Land values in South Dakota have doubled 

since 2002 and tripled since 1996. During 

this time, farm commodity payments 

increased from $230 million to more than 

$700 million a year. In addition to commodity

payments, interest rates, technology, and 

ethanol demand have also been factors in 

increasing land values. However, farmland 

values have become more dependent on

farm program payments. 

Shaik, Saleem, Joseph Atwood, and Glenn 

Helmbers. “Farm Programs and Agricultural

Land Values: The Case of Southern 

Agriculture.” Paper presented to the 

Southern Agricultural Economics 

Association Annual Meetings, Orlando, 

Florida, February 2006. 

To examine the contribution of 

expected farm returns and farm 

program payments in 12 

southern states. 

2006 The proportion of land values attributable to 

farm program payments has increased from 

about 14 percent in the early 1980’s to 67 

percent in the southern United States from 

2002 to 2004. 

Appendix V: Summaries of Economic Studies 

Examining the Impact of Farm Program 

Payments 

Page 58 GAO-07-1054 Agricultural Conservation
Appendix V: Summaries of Economic Studies

Examining the Impact of Farm Program 

Payments 

Economic study Purpose of the study Year Related findings and conclusions

U.S. Department of Agriculture. Economic 

Research Service. Environmental Effects of 

Agricultural Land-Use Change: The Role of 

Economics and Policy. Economic Research

Report Number 25, Washington, D.C., 

August 2006. 

To examine the relationship 

between agricultural land use 

changes, soil productivity, and

environmental sensitivity and the 

effects of increased crop 

insurance subsidies on land use.

2006 Land moving between cultivated cropland 

and less intensive agricultural uses is less 

productive and more vulnerable to erosion 

and nutrient runoff than other cultivated land. 

Producers tend to keep highly productive 

land in cultivation regardless of changing 

economic conditions. But economic 

conditions, such as changing commodity 

prices or production costs, encourage 

farmers to expand production to less 

productive land or to shift less productive 

croplands to other uses. Agricultural and 

conservation policies also affect land use. 

These land use changes affect 

environmental quality, particularly when

affected lower-quality lands are 

environmentally sensitive. Crop insurance 

raises incentives to expand crops to less 

productive land. Increased crop insurance 

subsidies in the mid-1990s motivated 

producers to expand cropland in the 

contiguous 48 states by an estimated 2.5 

million acres, with most of the land coming

from pastureland and other grassland. Due 

to this land-use change, annual wind and 

water erosion estimates increased by 1.4 

and 0.9 percent, respectively, as of 1997. 

U.S. Department of Agriculture. Economic 

Research Service. Agricultural Resources 

and Environmental Indicators, 2006 Edition. 

Economic Information Bulletin 16, 

Washington, D.C., July 2006.

To describe patterns and trends 

in land, water, and biological 

resources; report on the 

condition of natural and other 

resources used in the 

agricultural sector; and describe 

public policies and programs as 

well as economic factors that 

affect resource use, 

conservation, and environmental 

quality in agriculture. 

2006 Previous research has shown that 

capitalization of expected farm program 

payments increases cropland values. The 

effect of farm program payments on 

cropland values varies widely throughout the 

United States, but increases are highest in 

the Northern Plains. 

Janssen, Larry, and Yonas Hamda. Federal 

Farm Program Payments (1990 – 2001): An 

Analysis of Changing Dependency and the 

Distribution of Farm Payments in South 

Dakota. Selected paper 136474 presented to

the American Agricultural Economics 

Association Annual Meetings, Providence, 

Rhode Island, July 2005. 

To examine the economic 

impact of federal farm program

payments in South Dakota at the 

state and local levels from 1996

to 2001. 

2005 Statewide, federal farm program payments 

averaged 36 percent of net farm income 

from 1990 to 1995 and almost 54 percent 

from 1996 to 2001. The lowest dependency 

rate of net farm income on payments was in 

the most cropland-intensive East 

Central/Southeast region, while the highest 

dependency rate was in the Western region, 

which was the only region with payments 

exceeding net farm income in most years 

examined. The dependency rate of farm 

income on payments increased considerably 

in all regions from the 1990-1995 time period

to the 1996-2001 period. 

Page 59 GAO-07-1054 Agricultural Conservation
Appendix V: Summaries of Economic Studies

Examining the Impact of Farm Program 

Payments 

Economic study Purpose of the study Year Related findings and conclusions

Babcock, Bruce, and Chad Hart. “Risk-Free 

Farming?” Iowa Ag Review, vol. 10. no. 1 

(Winter 2004), 1-3,11. 

To examine how farm programs 

and crop insurance affect 

revenue. 

2004 The reduction in risk that crop farmers obtain

from crop insurance and commodity 

programs has largely resulted in risk-free 

crop production. In addition, the article 

states that farm programs create incentives

for farmers and landlords to focus on 

growing the commodities that are supported 

by these programs. 

Goodwin, Barry, Ashok Mishra, and Francois

Ortolo-Magne. “Landowners’ Riches: The 

Distribution of Agricultural Subsidies.” 

(Madison, Wisconsin: University of 

Wisconsin, February 2004). 

www.busc.wisc.edu/Realestate/pdf/

Landownersriches.pdf (downloaded June 21, 

2007). 

To examine the distribution of

farm program payments and 

how landowners may benefit 

from these payments. 

2004 Farm program subsidies have a significant 

impact on farm land values. Among the 

types of payments studied, loan deficiency 

payments appear to have the largest effect. 

Long-term payments not directly related to 

production had relatively little impact. 

Gray, Allan, Michael Boehlje, Brent Gloy, 

and Stephen Slinksy. “How U.S. Farm 

Programs and Crop Revenue Insurance 

Affect Returns to Farm Land,” Review of 

Agricultural Economics, vol. 26, no. 2 (2004), 

pp. 238-253. 

To examine the economic 

impact of federal farm program

and crop insurance payments on 

a typical Northwest Indiana 

corn/soybean farm. 

2004 Federal farm program payments influence 

land use decisions because they increase 

the expected returns to farming while 

lowering the associated risk. Also, crop 

revenue insurance enhanced the impact of 

other farm programs by substantially 

increasing the attractiveness of farming for 

the most risk-averse producers. 

Smith, Katherine. “The Growing Prevalence 

of Emergency, Disaster, and Other Ad Hoc 

Farm Program Payments: Implications for 

Agri-Environmental and Conservation

Programs,” Agricultural and Resource

Economics Review, vol. 30, no.1 (2004): 1-7.

To examine various federal 

disaster assistance programs to 

determine potential reasons for 

the rise in ad hoc disaster 

payments and their impact on

agri-environmental and 

conservation programs. 

2004 The use of emergency, disaster, and other 

ad hoc sources of income support to 

American farmers escalated dramatically 

between 1991 and 2002, increasing year-toyear uncertainty about the magnitude and 

distribution of farm program benefits. Ad hoc

payments have the potential to substitute for

or conflict with agri-environmental and 

conservation program goals. Crop disaster 

payments mitigate risk for risk-averse 

producers, thus increasing risky production, 

which, in turn, could lead to more natural 

and market-based losses. This could 

increase the need for additional crop 

insurance and disaster payments. 

Page 60 GAO-07-1054 Agricultural Conservation
Appendix V: Summaries of Economic Studies

Examining the Impact of Farm Program 

Payments 

Economic study Purpose of the study Year Related findings and conclusions

Goodwin, Barry, and Vincent Smith, “An Ex 

Post Evaluation of the Conservation 

Reserve, Federal Crop Insurance, and Other

Government Programs: Program 

Participation and Soil Erosion,” Journal of 

Agricultural and Resource Economics, vol. 

28, no. 2 (2003): 201-216. 

To examine the impact of federal 

farm programs on soil erosion.

2003 The Conservation Reserve Program 

significantly reduced soil erosion in areas 

where producers have participated. While 

federal crop insurance and disaster relief 

programs appear to have had little impact on

soil erosion, income supports that have 

encouraged production have had substantial

effects. In particular, about half of the 

reduction in soil erosion attributable to CRP 

enrollment was offset by increased erosion 

induced by increases in income-supporting

federal programs. 

Federal Reserve Bank of St. Louis. Political

Allocation of U.S. Agriculture Disaster 

Payments in the 1990s. Working paper 

2003-005C (St. Louis, Missouri, 2003). 

To examine the impact of 

political influence on the 

allocation of crop disaster 

payments, in addition to the 

effectiveness of legislation 

aimed at promoting more

efficient disaster payments 

systems, such as crop 

insurance, over direct payments.

2003 The report cites earlier studies finding that 

crop disaster payments create an incentive 

for producers to continue farming in high-risk

areas, therefore continuing the likelihood of 

losses and the need for assistance. Also, 

because individual production histories are 

not always available, county averages are 

often used to determine disaster payments, 

and producers farming less than the county 

average receive payments exceeding their 

actual losses. Finally, disaster payments do 

not have predictable annual costs. 

Young, C. Edwin, Monte Vandeveer, and 

Randal Schnepf. “Production and Price 

Impacts of U.S. Crop Insurance Programs,” 

American Journal of Agricultural Economics, 

vol. 83, no. 5 (2001), 1196-1203. 

To examine the impact of federal 

crop insurance on farmers’ crop 

decision making. 

2001 The presence of subsidized crop insurance 

adds an estimated 960,000 acres to the 

annual planting of grain, soybean, cotton, 

and five other row crops for the years 2001-

2010, with more than half of these plantings 

occurring in the Great Plains. To the extent 

that subsidized crop insurance leads to 

expanded acreage and higher production, 

market returns to producers will be reduced

for the major crops. This reduction partially 

offsets the subsidy benefits of the insurance.

Claassen, Roger, and Abebayehu Tegene, 

“Agricultural Land Use Choice: A Discrete 

Choice Approach,” Agricultural and 

Resource Economics Review (1999), 26-36.

To examine the impact of certain 

economic and land quality 

factors on land use choices 

between crop production and

pasture or CRP in the Corn Belt 

between 1980 and 1987. 

1999 Conversion probabilities depend on the 

relative returns from crop production and 

pasture, government policy (CRP), and land

quality. In general it is found that landowners 

are less inclined to remove land from crop 

production than to convert land to crop 

production. Corn Belt landowners appear to 

be generally less inclined to remove land 

from crop production than to convert land to 

crop production for land that was not eligible 

for the CRP. This is true even for low-quality 

land that was not eligible for the CRP. The 

asymmetry found here is consistent with a 

long-term trend toward increasing cropland 

acreage in the Corn Belt. CRP eligibility 

significantly increased the probability of 

converting land away from crop production. 

Page 61 GAO-07-1054 Agricultural Conservation
Appendix V: Summaries of Economic Studies

Examining the Impact of Farm Program 

Payments 

Economic study Purpose of the study Year Related findings and conclusions

Atwood, Joseph, Myles Watts, and Alan 

Baquet. “An Examination of the Effects of 

Price Supports and Federal Crop Insurance 

upon the Economic Growth, Capital

Structure, and Financial Survival of Wheat 

Growers in the Northern High Plains,” 

American Journal of Agricultural Economics, 

vol. 78, no. 1 (February 1996), 212-214. 

To examine the economic 

impact of federal farm program

and crop insurance payments on 

wheat producers in High Plains

states, such as Montana. 

1996 Price support programs and crop insurance 

are substitutes in reducing producer risk 

because the availability of crop insurance 

led to little change in farm viability if price 

supports were available. Moreover, the 

availability of crop insurance in a setting with

price supports allows producers to service 

higher levels of debt with no increase in risk. 

Heimlich, Ralph. “Agricultural Programs and 

Cropland Conversion, 1975-1981,” Land 

Economics, vol. 62, no. 2 (May 1986), 174-

181. 

To examine the implications of 

legislation to reduce the 

conversion of rangeland and 

other land to cropland. 

1986 For some newly converted highly erodible 

cropland, price support and farm credit 

program subsidies would make the 

difference between crop production 

revenues and variable costs positive. Farm 

programs would provide a subsidy for 

conversion of highly erodible land to 

cropland, averaging about $17 per acre. 

Source: GAO’s analysis of the studies cited.

Page 62 GAO-07-1054 Agricultural Conservation
Appendix VI: 

A

GAO Contact and Staff 

cknowledgments 

Page 63 GAO-07-1054

Appendix VI: GAO Contact and Staff 

Acknowledgments 

Lisa Shames, (202) 512-3841 or shamesl@gao.gov

In addition to the contact named above, James R. Jones, Jr. (Assistant 

Director), Kevin S. Bray, Gary T. Brown, Barbara J. El Osta, Chad M. 

Gorman, Grant M. Mallie, Lynn M. Musser, Alison D. O’Neill, Susan E. 

Offutt, and Steve C. Rossman made key contributions to this report. Also 

contributing to this report were Muriel C. Brown and Kim M. Raheb. 

GAO Contact 

Staff 

Acknowledgments 

Agricultural Conservation
Related GAO Products Related GAO Products 

Agricultural Conservation: USDA Should Improve Its Management of 

Key Conservation Programs to Ensure Payments Promote 

Environmental Goals. GAO-07-370T. Washington, D.C.: January 17, 2007. 

Suggested Areas for Oversight for the 110th Congress. GAO-07-235R. 

Washington, D.C.: November 17, 2006. 

USDA Conservation Programs: Stakeholder Views on Participation and 

Coordination to Benefit Threatened and Endangered Species and Their 

Habitats. GAO-07-35. Washington, D.C.: November 15, 2006. 

Agricultural Conservation: USDA Should Improve Its Process for 

Allocating Funds to States for the Environmental Quality Incentives 

Program. GAO-06-969. September 22, 2006. 

Conservation Security Program: Despite Cost Controls, Improved USDA 

Management Is Needed to Ensure Proper Payments and Reduce 

Duplication with Other Programs. GAO-06-312. Washington, D.C.: April 

28, 2006. 

Agricultural Conservation: USDA Should Improve Its Methods for 

Estimating Technical Assistance Costs. GAO-05-58. Washington, D.C.: 

November 30, 2004. 

Agricultural Conservation: USDA Needs to Better Ensure Protection of 

Highly Erodible Cropland and Wetlands. GAO-03-418. Washington, D.C.: 

April 21, 2003. 

Agricultural Conservation: State Advisory Committees’ Views on How 

USDA Programs Could Better Address Environmental Concerns. GAO-02-

295. Washington, D.C.: February 22, 2002. 

Environmental Protection: Federal Incentives Could Help Promote Land 

Use That Protects Air and Water Quality. GAO-02-12. Washington, D.C.:

October 31, 2001. 

(360771) Page 64 GAO-07-1054 Agricultural Conservation
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