Greening Income Support and Supporting Green

Conservation Program Design

Greening Income Support and
Supporting Green
Roger Claassen and Mitch Morehart
“Green payments” refer broadly to farm payment programs that would, if enacted, merge farm income
support and conservation payments. Although some existing programs do support both objectives, they
typically focus on one or the other. For example, the Conservation Reserve Program (CRP) retires land
from crop production largely for environmental reasons, but may also reduce production and increase
crop prices. Under the Conservation Security Program, “stewardship payments” that reward producers’
ongoing conservation efforts may also enhance their income. Likewise, Conservation Compliance is an
example of a policy that makes traditional commodity payments “greener.” Because green payments
would join two of the most popular aspects of agricultural policy into a single program, it is tempting to
view them as a way to “kill two birds with one stone,” perhaps saving money and broadening support for
agricultural policy in the process. The extent to which that is true, however, depends on the extent to
which income support payments are also suited to achieving environmental goals, and vice versa.
Do farms with income support needs also have pressing environmental problems that could be
addressed through green payments? Not necessarily. Income support and conservation payments are
triggered by different actions or conditions, are made in different amounts, often go to different producers, and are spread across the country differently. Moreover, while many farms that receive income
support payments also have acreage with resource concerns such as soil erosion and nutrient runoff,
many farms with high erosion or nutrient runoff potential do not receive income support payments.
These differences may indicate that some compromise of income support objectives, conservation objectives, or both would be required to create a program of green payment.

ECONOMIC BRIEF

Voluntary conservation
payment programs need to
specify who is eligible to
receive payments, how much
can be received, for what
actions, and the means by
which applicants are selected.
The achievement of program
goals in a cost-effective manner hinges on the choices
policymakers and program
managers make when
answering these questions.
This Economic Brief is
one in a set of five exploring
specific design options these
decisionmakers face:
(1) income support versus
environmental objectives,
(2) alternative ways to target
programs,
(3) the use of bidding in
determining payment
levels,
(4) land retirement and
conservation on
working lands, and
(5) payments for conservation practices versus the
level of environmental
performance.
Available at www.ers.usda.gov/
publications/eb1, . . ./eb2,
. . ./eb3, . . ./eb4, and . . ./eb5
1Commercial farms are large
family farms with sales above
$250,000 and some nonfamily
farms organized as cooperatives or nonfamily corporations. Intermediate farms have
sales below $250,000 and the
operator reports farming as his
or her major occupation. Rural
residence farms have gross
sales below $250,000 where
farming is considered a secondary activity both in terms
of resources invested in the
farm and the amount of
income it contributes to the
farm household.

Greening Income Support and Supporting Green

Conservation and Income Payments and Purposes Differ
Commodity-based income support is intended to enhance the incomes of eligible producers, primarily of
major field crops—corn, wheat, soybeans, and cotton (see box “Summary Comparison of Income
Support and Conservation Payments”). Historically, producers with greater production received larger
payments. Since 1996, some (but not all) income support payments have been based on historical crop
acres and yields rather than current acres and yields. The change was designed to reduce the effect of
income support on production decisions and avoid stimulating production that could otherwise affect
commodity prices. Even so, producers who farm highly productive land (with a history of high yields)
that is eligible for commodity payments (by virtue of a history of program crop production) will tend to
reap the largest income support payments.
Conservation payments, on the other hand, are designed to prompt change in land use or production
practices that would have a beneficial environmental effect. Conservation payments are available to a
wider range of producers—nearly all crop and livestock producers are eligible for at least one conservation program. While conservation programs do seek to change production practices, the level of production itself may or may not be affected. Land retirement is likely to affect production, although how much
depends on the quality of the land retired and the extent to which other land is converted to crop production (sometimes referred to as “slippage”). On the other hand, many conservation practices will have
little or no impact on production levels. Producers who install terraces to reduce soil erosion, for example, would likely see little change in production, at least in the short term. Finally, most conservation payments are limited to the amount necessary to prompt adoption of new practices, perhaps covering only
a portion of the producer’s cost. Some programs use competitive bidding among producers to stretch
program budgets (see Economic Brief No. 3).

Different Payments Mean Different Participants
About 40 percent of U.S. farms, representing 60 percent of all agricultural production, receive some type
of government payment. Of the 40 percent of farms that do receive some type of government payment,
only 15 percent—about 6 percent of all farms—receive both commodity and conservation payments
(fig. 1). If the amount of money available for conservation programs were significantly increased, the
number of farms receiving both types of payment would increase. However, less than half of current
conservation payments (43 percent) go to farms that also receive commodity payments, so a large share
of additional conservation payments could also flow to farms that do not receive commodity payments.
Differences in the distribution of commodity and conservation payments across farm types and regions
are striking. Most income support payments go to large, commercial farms, while most conservation payments go to rural residence farms1 (fig. 2).
Figure 1
Commodity payments, relative to the value
Distribution of farms receiving farm program
of agricultural sales, are concentrated in
payments by major program type, 2003
areas where production of program crop
commodities, including corn, wheat, and
Conservation but
Neither conservation
cotton, is prevalent—the Corn Belt,
not commodity
nor
commodity*
Northern Plains, and the Mississippi Delta
19%
18%
(fig. 3a). Conservation payments tend to be
higher relative to sales in some areas of the
Conservation
Northern Plains and intermountain West,
and commodity
and where farmlands are hilly and prone to
15%
soil erosion (southern Iowa and northern
Commodity but
Missouri, for example; fig. 3b).
not conservation
The lack of overlap between commodity and
conservation payments, however, does not
mean that commercial farms do not face
environmental issues, nor that environmental

UNITED STATES DEPARTMENT OF AGRICULTURE

48%

Source: Economic Research Service, using data from the
Agricultural Resources Management Survey.
*Mostly disaster payments.

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Summary Comparison of Income Support and Conservation Payments
Income support payments

Conservation payments

Key programs

Direct payments, counter-cyclical payments,
loan deficiency payments, and marketing
loan gains.

Conservation Reserve Program (CRP), Wetlands Reserve
Program (WRP), Environmental Quality Incentives Program
(EQIP), and Conservation Security Program (CSP)

Which producers?

Primarily producers of major field crops (e.g.,
corn, wheat, soybeans, cotton). To be eligible,
producers must have a history of producing
program crops. Since 2002, dairy producers
are also eligible for income support payments.

Crop and livestock producers, although emphasis varies
among programs. Eligibility varies by program, but can
depend on the type of land (e.g., highly erodible land),
land use (e.g., land retirement focuses on cropland), or
location (e.g., conservation priority areas). Livestock
waste management is a priority in some programs.

Programs are entitlements, so all eligible producers can participate if they choose to.

Programs are competitive and often favor enrollment
of producers who offer greater environmental benefits
relative to cost.

Direct and counter-cyclical payments are
decoupled from production. Payments are
based on a history of producing eligible crops.

Payments are based on conservation-oriented action,
e.g., land retirement, conservation practice adoption,
etc., to address environmental issues such as water quality.

What action?

Loan deficiency payments and marketing loan
gains are based on current production.
How much?

Although some payments are decoupled from
current production, payments still tend to be
largest for producers who produce large quantities of eligible crops. Because decoupled
payments are based on the amount of land a
producer controls and the yield history, large
payments tend to go to farms with large
acreages of highly productive land.

Most programs attempt to limit payments to levels necessary to encourage participation. Some programs use
competitive bidding to set payment rates.

problems are concentrated on rural residence farms. Nearly every farm faces some type of environmental concern. For example,
the potential for nitrogen runoff associated with the application of commercial fertilizer in crop production is spread across all
three farm types in the collapsed ERS farm typology (fig. 4). Rural residence farms account for a relatively small share of acres
vulnerable to nitrogen runoff because they account for a relatively small share of land in crop production. Likewise, soil erosion
on cropland that is not highly erodible is also spread across farm types. This is of concern because such land is not subject to
conservation compliance (which makes soil conservation on highly erodible land (HEL) a condition of farm program eligibility)
and is not generally eligiFigure 2
ble for the Conservation
Reserve Program (which
Distribution of government payments by collapsed ERS farm typology
pays for long-term retireCommodity
Other*
Conservation
ment of cropland).
The existing distribution
of conservation payments
largely reflects existing
programs. The largest U.S.
conservation program, the
Conservation
Reserve
Program (CRP) provides
annual payments in
exchange for (1) long-term
retirement of land and (2)
installation of “buffer”

Commercial
farms
Intermediate
farms
Rural
residence
0

10

20
30
40
Percent of payments, by payment type

50

Source: Economic Research Service using data from the Agricultural Resources Management Survey.
*Mostly disaster payments.

3

60

Greening Income Support and Supporting Green

ECONOMIC BRIEF

practices such as edge-of-field filter strips
or grassed waterways that can filter nutrient and sediment out of runoff before it
reaches water. Roughly 60 percent of CRP
payments go to rural residence farms,
which accounts for their substantial share
of overall conservation payments. But
these farms receive a small share of commodity payments, contributing to the limited overlap between commodity and conservation payments.
The Environmental Quality Incentives
Program (EQIP), on the other hand,
focuses on a wide range of practices on
working agricultural lands, including cropland, grazing land, and issues related to
confined animal feeding operations
(CAFOs). By statute, 60 percent of EQIP
payments address livestock-related issues.
Because livestock farms are less likely than
crop farms to receive commodity payments, the EQIP requirement also tends to
limit the overlap between commodity and
conservation payments.
Does the existing distribution of conservation payments maximize the environmental benefit that could be gained from available funding? Because the processes by
which agriculture affects the environment
are very complex (e.g., nutrient runoff) and
the damage to natural resources difficult to
value (e.g., the loss in recreational value due
to eutrophication), the environmental gain
from application of conservation practices
is difficult to gauge. Nonetheless, previous
research suggests that targeting CRP
enrollment using the Environmental Benefits Index has increased the level of environmental benefits
obtained from that program (see Economic Brief No. 2). The same research indicates that additional gains
are possible, but uncertainties remain because only some of the potential environmental gains from CRP
(or other conservation programs) have been quantified.

Greening Income Support or Supporting Green?

CRP payments go to
rural residence farms,
which accounts for
their substantial share

Commodity and conservation programs could be combined in many different ways. Consider hypothetical
“polar” cases to illustrate key issues that policymakers are likely to face if they decide to meld commodity
and conservation programs. On one end of the spectrum, policymakers could start with existing commodity
programs and add “green” requirements similar to existing compliance requirements. Current compliance
requirements make eligibility for income support (among other Federal agricultural payments) contingent
on wetland conservation (Swampbuster) and soil conservation on HEL (Conservation Compliance and
Sodbuster). On the other end of the spectrum, they could start with existing conservation programs and
increase payments to levels that support farm income as well.

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Roughly 60 percent of

of overall conservation payments.

ECONOMIC RESEARCH SERVICE

ECONOMIC BRIEF

Many conservation indicators could be used to
determine eligibility for
conservation payments.
For illustrative purposes, we
consider three indicators:
• Rainfall erosion
acreage—cropland that
is not highly erodible land
(HEL) with rainfall erosion
rates greater than the soil
loss tolerance (T);
• Wind erosion acreage—
non-HEL cropland with
wind erosion rates
greater than the soil loss
tolerance (T);
• Nitrogen runoff
acreage—cropland
acreage where nitrogen
runoff to surface water is
estimated to exceed
1,000 kg/km2/year.
For details see AgriEnvironmental Policy at
Crossroads, AER-794, 2001.

Greening Income Support and Supporting Green

Figure 4
Acres vulnerable to selected environmental concerns, by collapsed ERS farm typology
Rainfall erosion

Wind erosion

Nitrogen runoff

Commercial
farms

Intermediate
farms

Rural residence
farms

0

5

10

15

20

25

30

35

40

45

50

Percent of vulnerable acres
Source: Economic Research Service using data from the National Resources Inventory (NRI) and the
U.S. Geologic Survey.

If policymakers choose to focus green payments on the current recipients of farm income support, these payments would not
address the same environmental issues or direct funds to the same producers as current conservation payments. In 2003,
only 43 percent of conservation payments went to farms that also received commodity payments.
Likewise, recipients of commodity payments represent only a portion (albeit substantial) of agricultural
production: farms receiving commodity payments encompass about 75 percent of agricultural land and
account for 55 percent of crop production and 45 percent of livestock production. If commodity payments were to serve as the basis of a new green payments program, environmental effort would focus
more heavily on crop production than on livestock concerns, which play a large role in existing programs
such as EQIP.
Farms receiving
commodity payments
encompass about 75
percent of agricultural
land and account for
55 percent of crop
production and 45
percent of livestock
production.

One way to “green up” income support would be to expand compliance requirements. The effectiveness
(and enforceability) of compliance mechanisms in achieving environmental gain, compared with a conservation payment program, would depend on the size and location of payments relative to the cost of
addressing specific environmental problems and their location. Given that major income support programs are centered on major field crops, environmental problems associated with cropland are likely candidates for compliance. Witness the overlap between farm program payments and high potential for
nitrogen runoff from land in crop production (fig. 5).
Expanding compliance could, however, undercut income support if conservation requirements were
expensive to fulfill. Moreover, unless payments tend to be high where conservation costs are high (and there
is no reason to believe that they would be), equity issues could also arise. Some producers could face relatively large costs while receiving only modest payments, while others who receive larger income support
payments might face only minimal conservation cost. In Conservation Compliance, for example, the (estimated) level of farm program payment per HEL cropland acre—which represents the incentive to meet
compliance requirements relative to the scope of the problem on a given farm—varies widely across farms.

UNITED STATES DEPARTMENT OF AGRICULTURE

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Greening Income Support and Supporting Green

If green payments were developed from existing conservation programs, payments would be distributed across producers differently than existing income support payments. While commodity payments go primarily to those who own or
farm land with a history of producing certain crops, conservation payments tend to be more broadly
available (even though participation has been small, relative to commodity programs, due to limited
funding). The distribution of payments (under existing working land programs) would be unlikely to
match that of current income support programs or even that of current conservation programs, with
their overall emphasis on land retirement. Producers of non-program crops and livestock could be
eligible for income support delivered through a green payments program.
Income support would depend on the relationship between green payments and conservation costs,
which vary among producers. For example, producers with more erosion-prone land might find it more
difficult and expensive to reduce soil erosion (to improve water quality) than producers who farm less
erosion-prone land. Unless differences in cost are recognized, the effective level of support received by
producers would be higher for producers with low costs than those with high costs. Existing conservation programs that offer cost-sharing to producers do recognize differences in the cost of applying practices. For structural practices like terraces and grassed waterways, actual cost can be precisely determined
from receipts for dirt work, seed, planting, etc. For management practices such as conservation tillage or
nutrient management, however, producer-specific costs are more difficult to determine because costs
result from changes in input use and, perhaps, crop yields.
Payments could also be tied to the value of environmental gains that result from a producer’s action (see
Economic Brief No. 5). If producers who can deliver larger environmental benefits (and attract a higher payment) tend to have higher conservation costs, most producers would receive about the same level
of income support. Otherwise, producers with low costs relative to the environmental gain-based payment would receive a higher level of income support than other producers.
Designing a green payments program would largely be an exercise in allocating the limited funds available
for income support and environmental purposes. Because few producers receive both commodity and
conservation payments from existing programs, however, melding income and conservation programs
would likely require some compromise of income support and environmental objectives. Building green
payments around commodity programs would risk excluding some producers who face environmental
challenges, particularly in the livestock sector. On the other hand, starting with conservation programs
could lead to a significant redistribution of income support efforts.
THE U.S. DEPARTMENT OF AGRICULTURE IS AN EQUAL OPPORTUNITY PROVIDER AND EMPLOYER

ECONOMIC BRIEF

This brief is drawn from . . .
Cattaneo, A., R. Claassen, R.
Johansson, and M. Weinberg.
2005. Flexible Conservation
Measures on Working Land: What
Challenges Lie Ahead? U.S.
Department of Agriculture,
Economic Research Service,
Economic Research Report
No. 5 (June).
Claassen, R., L. Hansen, M.
Peters, V. Breneman, M.
Weinberg, A. Cattaneo, P.
Feather, D. Gadsby, D.
Hellerstein, J. Hopkins, P.
Johnson, M. Morehart, and M.
Smith. 2001. Agri-Environmental
Policy at the Crossroads. U.S.
Department of Agriculture,
Economic Research Service,
Agricultural Economic Report
No. 794 (January).
Claassen, R., V. Breneman, S.
Bucholtz, A. Cattaneo, R.
Johansson, and M. Morehart.
2004. Environmental Compliance in
U.S. Agricultural Policy. U.S.
Department of Agriculture,
Economic Research Service,
Agricultural Economic Report
No. 832 (June).

For more information, see www.ers.usda.gov/abouters/privacy.htm

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ECONOMIC RESEARCH SERVICE