Agricultural Conservation: Farm Program Payments Are an Important Factor in Landowners' Decisions to Convert Grassland to Cropland
Published: 2007-09-10T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The nation's remaining grassland has several important benefits, such as providing land for grazing and wildlife habitat for many at-risk 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.
section_title: What GAO Found
paragraphs: 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.

section_title: Letter
paragraphs: 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. 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  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. 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  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.
subsections: section_title: Background
paragraphs: 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.
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  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.
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.
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. 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  payments—and subsidizes a portion of the premium paid by participating  producers.
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, 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,  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. 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  erodible land that was cropped before December 23, 1985. Figure 2  illustrates when a landowner must apply a conservation system, as  required by Sodbuster, to control erosion on newly converted cropland.
section_title: Available Data Show Conversion of Native Grassland to Cropland Continues, and These Conversions Add to Farm Program Costs
paragraphs: 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.
subsections: section_title: Available Sources of Information Indicate That Grasslands Decreased, and Native Grassland Conversions to Cropland Were Highest in the Northern Plains
paragraphs: 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. According to the NRI, from 1982 to 2003 in the 48  contiguous states, rangeland and pastureland declined by about 10.4  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.
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.
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. 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.
Ducks Unlimited Study. 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  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. 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.
section_title: Crop Insurance and Crop Disaster Assistance Costs Were Significantly Higher in Counties That Had Higher Conversion Rates
paragraphs: 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  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. 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.
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. 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,  including about $16 million in 7 historically cropped counties in southeast  South Dakota.
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. The crop insurance program has high premium subsidies to  encourage participation. Premium subsidies are calculated as a percentage  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.
section_title: Farm Program Payments, Rising Crop Prices, and the Adoption of New Farming Technologies Provide Incentives to Expand Crop Production on Native Grasslands
paragraphs: 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.
subsections: section_title: Rising Crop Prices and Advanced Crop Production Technologies Are Important Factors in Decisions to Convert Native Grassland to Cropland
paragraphs: 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.  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. NASS stated that  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.
section_title: Farm Program Payments Provide Incentives to Convert Native Grassland to Cropland by Increasing Producers’ Income and Reducing Their Financial Risks
paragraphs: 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,  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. 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). The table also shows corn prices and yields as well as calf  and cow prices during this period.
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  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  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.
section_title: Incentives to Convert Grassland May Work at Cross Purposes with USDA Conservation Programs
paragraphs: The incentives provided by farm program payments appear to be  inconsistent with USDA conservation programs, such as the Wetlands  Reserve Program, the Grassland Reserve Program, 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.
section_title: Sodbuster Has Had Little Impact on Native Grassland Conversions
paragraphs: 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.
subsections: section_title: Much of the Native Grassland Converted in Recent Years Was Not Subject to Sodbuster
paragraphs: 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.
section_title: Even When Planned Conversions Are Subject to Sodbuster, Producers Are Not Usually Deterred
paragraphs: 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  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. 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.
section_title: USDA and Some Stakeholder Organizations Have Offered a Proposal to Discourage Grassland Conversions
paragraphs: 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.
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.
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.
section_title: Conclusions
paragraphs: 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.
section_title: Recommendations for Executive Action
paragraphs: 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  Chief of the Natural Resources Conservation Service to jointly study this  issue and report their findings to the Secretary and the Congress.
section_title: Agency Comments and Our Evaluation
paragraphs: 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.
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.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: 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). We  supplemented this information with land use data gathered by the U.S.  Department of Agriculture’s (USDA) National Agricultural Statistics  Service (NASS). 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. In addition, we reviewed  other relevant studies of grassland conversions to cropland, including a  2001 study by Texas A&M University and other researchers and a 1999  study by University of Wisconsin researchers. 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  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. 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. 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  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.
section_title: Appendix II: National Resources Inventory Data on Net Changes in U.S. Land Use, 1982- 2003
paragraphs: 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. 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.
section_title: Appendix III: Census of Agriculture Data on Net Changes in Uses of Land in Farms for the United States and Selected States
paragraphs: The Census of Agriculture, conducted every 5 years by USDA’s National  Agricultural Statistics Service, is a census of agricultural producers. 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, 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.
section_title: Appendix IV: Partial Budget Analysis for a Proposed Conversion of Native Grassland to Cropland in Central South Dakota, 2003-2007
paragraphs: 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 budget  estimates the net change in income that results when shifting from a base  plan to an alternative scenario.
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  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.
subsections: section_title: Base Plan Scenario—Cow- Calf Grazing
paragraphs: 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 tool  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. On the basis of South Dakota NRCS officials’ expert  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. 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.
section_title: Alternative Scenario— Corn/Soybean/Spring Wheat Cropping Rotation
paragraphs: 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  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.
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. 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. 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  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. 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.  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  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.
section_title: Partial Budget Analysis
paragraphs: 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  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  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. 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.
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.
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. 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.
section_title: Appendix V: Summaries of Economic Studies Examining the Impact of Farm Program Payments
paragraphs: 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.
section_title: Appendix VI: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: 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.
section_title: Related GAO Products
paragraphs: 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.