EPA Questions and USDA (ERS, FSA, WAOB, RMA) Responses Related to Petitions for EPA

Reconsideration of the Aggregate Approach for Renewable Biomass under the Renewable Fuel Standard

Program

February 3, 2011

1. Do existing USDA price support and risk protection programs provide an incentive for farmers to

plant crops on land that was not previously used as cropland or pastureland, or enrolled in the

Conservation Reserve Program?

Without a cropping history, converted lands are not eligible for direct payments or countercyclical

payments; however, production from the land would be eligible for non

‐ recourse loan benefits including

loan deficiency payments. In addition, such land is generally not insurable under the Federal Crop

Insurance Program, but there are some exceptions, discussed below.

The following link to the budget files and the commodity estimates book under each President’s

budget exercise show that there have been no program payments encouraging corn and soybean

planting in recent years. The most recent is FY 2011 that has actual outlays for FY2008 and 2009 and

then projections. Page 117 shows corn outlays and page 155 shows soybean outlays. Direct payments

(that do not change significantly from year to year and that are unrelated to current production)

account for most outlays, with loan deficiency payments and countercyclical payments at virtually zero

due to strong prices Marketing loan gains are not shown in these tables but are also zero. They can be

found on page 99, where program payments are summarized for all the crops. Thus, under current and

anticipated market conditions, we do not believe that these programs are encouraging farmers to plant

crops on land that was not previously used as cropland or pastureland, or enrolled in the CRP program.

http://www.fsa.usda.gov/FSA/webapp?ar ea=about&subject=landing&topic=bap

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The basic provisions of the crop insurance program provide that acreage which has not been

planted and harvested or insured in at least one of the three previous crop years is generally

uninsurable unless: 1) the acreage was planted to comply with another USDA program (e.g.

Conservation Reserve Program (CRP)); 2) such acreage constitutes five percent or less of t the insured

planted acreage in the unit; or 3) a “new breakings” or “NB” written agreement specifically allows

insurance for such acreage. We do not have data on the amount of acres covered by crop insurance

that had not previously been used for crop production, pastureland, or enrolled in the CRP. However,

the information we do have suggests that the insurance program does not provide a significant incentive

for converting such lands to crop production.

We note first that under the crop insurance program, the coverage provided to growers has a

substantial deductible

– generally 25 to 35 percent. Such deductibles are generally greater than the

profit margin that a typical grower faces. This means that when losses are large enough to qualify forcrop insurance indemnity payment, the grower is already facing a significant financial loss for the crop

year. While crop insurance helps to reduce the impact of severe losses, it is not designed to create a

profit where it would otherwise not exist in the absence of insurance.

We do have data on the acreage covered by NB written agreements. These agreements allow

insurance on acreage which has not been planted and harvested or insured in at least one of the three

previous crop years. While there has been an increase in acres covered by such agreements in recent

years, the ratio of such acres to all insured acres is exceedingly small. As discussed in more detail in

response to question [ ], it is likely that the lands covered by these NB written agreements were

cropped in the past (more than three years before the NB written agreement), or were formerly used as

pastureland.

Crop Year NB Written

Agreement Acres Ratio of NB

Written

Agreement

Acres to

Total

Insured

Acres

2007 74,981 .0003

2008 133,201 .0005

2009 159,912 .0006

We do not have data on the acreage of land covered by crop insurance that does not have a

cropping history within the three years prior to receipt of insurance, but is nevertheless covered

because such acreage constitutes five percent or less of t the insured planted acreage in the unit.

However, once again, as described more fully in response to question [ ], we believe it likely that such

acreage was either planted in crops at some earlier time or was previously used for pastureland.

2. Data indicate recent increases in cropland acreage, including increased acreage devoted to

growing corn and soy; does USDA know how such increased cropland acres were used prior to

recent dedication to crop production? Do advances in pesticides, herbicides and genetically

engineered crops make it profitable to grow crops on marginal lands not previously used for

such purposes?

Data for 2008 and 2009 indicate that cropland did increase with strong market incentives. This does

not necessarily mean that any land not previously used for cropland, pastureland or CRP land was

converted. As might be expected, cropland declined in 2009 as prices retreated. The area cropped inthe United States fluctuates with higher and lower expected returns. Planted area for the eight major

field crops (corn, soybeans, wheat, sorghum, barley, oats, rice and upland cotton) increased about two

percent in 2007 and again in 2008 in response to rising prices, in part as a result of expansion in demand

for corn through higher ethanol production. As prices receded from their record levels in 2008, planted

area declined about 1.5 percent in 2009.

Rising prices will tend to expand production, but at least part of this expansion occurs through more

intensive cropping of existing lands. Double cropping of soybeans following winter wheat in 2008 was 2

‐

3 million acres above the average of recent years. This accounts for about half of the planted area

increase for the major field crops in 2008. With farm program provisions not fully applicable to land

without a farming history and crop insurance coverage either unavailable or more limited for land

without a yield history, higher prices should tend to increase farming intensity on existing U.S. cropland

with more double cropping and increased input use. The existence of Federal price support and risk

protection programs that treat new cropland less favorably than existing cropland should create more

incentive for area expansion outside the United States where such programs do not limit the

attractiveness of area expansion.

Advances in herbicides, pesticides have lowered costs of production through reduced field

operations and more effective weed control, and improved genetics have helped increase yields, in part

by reducing downside yield risk from adverse weather. These technological advances help raise yield

potentials and could make production viable on some marginal land that would have otherwise

remained out of production. However, if a farmer decides to expand cropping, he is likely to choose to

expand to lands that are ready to crop, or that require relatively few inputs to become ready for

cropping. First, a farmer is likely to plant crops on land currently dedicated to lower profit crops such as

wheat or pastureland, rather than previously unbroken land, which is more likely to require a high level

of effort and/or inputs to be economically feasible for cropping. Thus, the impact in most cases is not

the cultivation of new ground, but the switch from a crop with lower returns, especially wheat, to those

with higher returns such as corn and soybeans. The higher returns reflect higher yields and/or higher

prices. The area planted to wheat has been declining dramatically in recent years, slipping to just 54

million acres in 2010. In 1990, wheat planted area was 77 million acres and in 1981, the area was 88

million. Attachment 1, titled “Copy of County Wheat Area Change for EPA” looks at the five largest

wheat acreage counties in the 4 reference states in 1997 and then compares data for 2007. Farmers

evaluate the potential costs and returns for the various crops that they can plant on their farms each

year. As a result, corn and soybeans have been replacing wheat in the referenced states even though

yields are not as high as in other states.

3. Petitioners have suggested that Farm Services Agency data show “new breakings” occurring in

North Dakota, South Dakota and Montana. In 2007, Congressional Research Service

communications with FSA documented 139,781 acres broken from 2005

‐ 2006 in these three

states. They also assert that personal communication from FSA staff to Ducks Unlimited

revealed that from 2002 to 2007, more than 450,000 acres of grasslands were converted tocropland in the Dakotas. They claim that FSA data in Montana shows “new breakings” of 6,200

acres in 2006; 9,700 acres in 2007; 9,100 acres in 2008 and 11,300 acres in 2009. Does this

information demonstrate that land not previously used to grow crops or for pastureland, or

enrolled in the CRP program, is being converted to crop production?

A “new breaking” in USDA programs is land that is not generally eligible for crop insurance. Thus, it

is acreage which has not been planted and harvested or insured in at least one of the three previous

crop years. Clearly much of the land described in the question could have been cropped or used as

pastureland in the past. Thus, the data and results noted above are not sufficiently robust to ascertain

the use of the land in question more than three years before the data were collected.

In addition, in numerous cases, if FSA found that a field boundary was changed within an already

determined identical field, the entire field acreage was identified as a “new breaking.” This information

was to be used strictly by FSA to validate that a field boundary had changed and not to represent an

entire acreage as new breaking. Thus, the new breaking acreage was much less than was reported as

new breaking on the FSA

‐ 578 acreage reports.

4. Does USDA have data on the percentage of agricultural land devoted to production of

feedstocks for biofuel production?

Attachment 2, entitled “Corn and Soybean Use for Biofuels” estimates the shares of the corn and

soybean crops and acreage that are used for biofuels. This information is based on the corn used for

ethanol production and soybean oil used for methyl ester (biodiesel) as estimated and projected in the

World Agricultural Supply and Demand Estimates (WASDE) report as of December 10, 2010. The

footnotes indicate the online sources and assumptions used. To derive the net amount of each crop’s

production and acreage, adjustments for the production of corn by

‐ products and soybean meal (both of

which are not lost in the production of ethanol and biodiesel) have been made. FSA provided the total

agricultural land acreages that were used to calculate the total amount of agricultural land used to

produce biofuels. The results show that only 4.9% of total agricultural land was directly attributable to

biofuel production in 2009/2010.