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Are cost-share payments a cost-effective way to increase cover crop area?
By Alejandro Plastina, Farm Foundation Agricultural Economics Fellow/Iowa State University and Wendiam Sawadgo, Auburn University
Farmers often use cover crops for their soil health benefits. However, the benefits of cover crops go beyond the farm, as they have been shown to reduce nutrient pollution from fields to waterways through leaching or runoff. As such, cover crops have been extensively promoted in the United States as a way to improve water quality around farmland and downstream in major water bodies such as the Gulf of Mexico, Lake Erie, and the Chesapeake Bay. Despite the 50% increase in cover crop adoption between 2012 and 2017, amounting to 5.1 million acres (Wallander et al., 2021), total cover crop area in 2017 represented less than 4 percent of total cropland acres in the United States.
This low adoption rate is likely in part due to the high costs of implementing cover crops, which in the Midwest typically amount to $40 per acre, mostly from the added cost to plant cover crops. To promote the use of cover crops, several cost-share programs are available to farmers, including the Environmental Quality Incentive Program (EQIP) and the Conservation Stewardship Program (CSP).
An important concept in the design of cost-share programs is additionality: the adoption of a practice that would not have occurred in the absence of cost-share. When additionality is low, farmers who receive cost-share largely do not require it to implement cover crops, and programs tend to be cost-ineffective. High additionality indicates that farmers would not implement the practices without cost-share and is associated with cost-effective programs. The discussion of additionality and effectiveness of payments for environmental services is central to the development of agriculture carbon markets.
Only a few studies use farm-level data to evaluate the additionality of programs promoting conservation practices in the United States. Claassen and colleagues (2018) found that additionality rates differed among programs promoting nutrient management, conservation tillage, and buffer strips across the United States. They also found greater additionality for practices that take land out of crop production or have greater short-term costs. Studies in Maryland (Lichtenberg and Smith-Ramirez 2011; Fleming 2017; Fleming and colleagues 2018) and Ohio (Mezzatesta and colleagues 2013) found that crop farmers’ enrollment in cost-share programs increased the share of acres under cover crops from 8% to 28%. Results from ongoing work by Gonzalez-Ramirez and Arbuckle (2016) indicate that that cost-share payments increase acreage share of cover crops by 18 percentage points among Iowa farmers. Lee and colleagues (2018) found that Iowa farmers who received cost-share or technical assistance were more than twice as likely to plant cover crops than those who did not. The question remains—are cost-share programs effective at increasing cover crop use or would the participants of cost-share programs have planted cover crops regardless?
Iowa has the second-largest publicly funded cost-share program for cover crops in terms of acreage enrolled, only behind Maryland. A recent article by Sawadgo and Plastina (2021) evaluates the cost-effectiveness of cost-share programs promoting cover crops in Iowa using farm-level data from a statewide survey linked to the Census of Agriculture. About 40% of cover crop users in Iowa received cost-share payments that averaged $26 per acre. The goal of the article is to understand whether cost-share programs actually translated into additional acres planted to cover crops in Iowa, or they simply act as a cash transfer that does not lead to increased environmental benefits. After accounting for factors such as differences in past cover crop area, farm size, rented farmland, and presence of livestock or poultry, the article finds that cost-share recipients planted an additional 15% of their farmland to cover crops than they would have, had they not received cost-share. Fifty-four percent of cost-share funded acres were additional, meaning that over half of farmland in cost-share programs funded cover crop acreage that would not have been planted without payment. This suggests that although a large chunk of spending went to acreage that would have had cover crops regardless, there was a significant amount of farmland that was planted to cover crops due to the cost-share programs.
Sawadgo and Plastina (2021) also consider the costs of achieving environmental gains by estimating the cost of reducing each pound of nitrogen loss through cover cropping. Using state data for cover crop cost-share expenditures and cover crop acreage, they estimate that cost-share programs led to 172,000 additional cover crop acres in 2015. Using results from a study that looks at the effectiveness of cover crops at reducing nitrogen loss in central Iowa, they estimate that cover crops helped avoid 3,078–8,405 tons of nitrogen loss in Iowa in 2015. Combining these values with the public cost-share expenditures in 2015, they report that the cost of avoiding one pound of nitrogen amounted to $1.59–$4.33, with cost-share funding paying for 32% of this cost and farmers covering the remaining 68% (figure 1a). The large farmer portion is driven by almost half of the state’s cover crop acreage being self-funded, and even cost-share participants seeing net annual losses of $23 per acre from using cover crops after accounting for the cost-share payments. In all, farmers were estimated to contribute $18.28 million statewide to funding cover crops and the public to contribute $8.4 million through cost-share funding.
On farmland funded through cost-share, the public cost of avoiding nitrogen loss beyond what would have occurred in the absence of cost-share programs is estimated at $1.72–$4.70 per pound of nitrogen. Overall, 29% of the Iowa’s nitrogen loss that was avoided due to cover crops would not have occurred in the absence of cost-share programs (figure 1b).
When comparing Iowa to Maryland, Maryland has a larger proportion of its cost-share acreage that would not use cover crops in absence of cost-share funds. However, the public cost of abating nitrogen through cover crop cost-share programs in Iowa was estimated by Sawadgo and Plastina (2021) at $1.72–$4.70 per pound of nitrogen, which was less than the reported costs in Maryland, which range from $5.80 to $8.87 per pound (Fleming 2017; Fleming and colleagues 2018). The cost was less in Iowa than in Maryland most likely because the average payment rate in Maryland was $45 per acre, compared to $26 per acre in Iowa. The tradeoff between program costs and the incentives to entice farmers to enroll acres in the program lies in the heart of cost-effective policy design.
In summary, Sawadgo and Plastina (2021) find mixed results in terms of the effectiveness of cover crop cost-share programs in Iowa. Only about half of the cover crop acres enrolled in cost-share programs funded farmland that would not have had cover crops without the payment; however, the cost of reducing nutrient pollution is lower in Iowa than in other states due to its lower payment rate. In Iowa, farmers fund about 70% of the cost of cover crops through annual net-losses, while the public finances the remaining 30% through cost-share programs. Questions remain as to the best way to reduce nutrient pollution to waterways and increase the use of conservations practices like cover crops that remains sparse.
References
Claassen, R., M. Bowman, J. McFadden, D. Smith, and S. Wallander. 2018. Tillage Intensity and Conservation Cropping in the United States. Washington, D.C.: U.S. Department of Agriculture, Economic Research Service, Economic Information Bulletin 197, September.
Fleming, P. 2017. “Agricultural Cost Sharing and Water Quality in the Chesapeake Bay: Estimating Indirect Effects of Environmental Payments.” American Journal of Agricultural Economics 99(5):1208-1227.
Fleming, P., E. Lichtenberg, and D.A. Newburn. 2018. “Evaluating Impacts of Agricultural Cost Sharing on Water Quality: Additionality, Crowding in, and Slippage.” Journal of Environmental Economics and Management 92:1-19.
Gonzalez-Ramírez, M. J., and J.G. Arbuckle Jr. 2016. “Cost-Share Effectiveness in the Diffusion of a New Pollution Abatement Technology in Agriculture: The Case of Cover Crops in Iowa.” Working Paper.
Lee, D., J.G. Arbuckle, Z. Zhu, and L.W. Nowatzke. 2018. “Conditional Causal Mediation Analysis of Factors Associated with Cover Crop Adoption in Iowa, USA.” Water Resources Research 54:1-19. https://doi.org/10.1029/2017WR022385
Lichtenberg, E., and R. Smith-Ramirez. 2011. “Slippage in Conservation Cost Sharing.” American Journal of Agricultural Economics 93(1):113-129.
Mezzatesta, M., D.A. Newburn, and R.T. Woodward. 2013. “Additionality and the Adoption of Farm Conservation Practices.” Land Economics 89(4):722–742.
Sawadgo, W., and A. Plastina. 2021. “Do Cost-share Programs Increase Cover Crop Use? Empirical Evidence from Iowa.” Renewable Agriculture and Food Systems, 1-9. doi:10.1017/S1742170521000132.
Wallander, S., D. Smith, M. Bowman, and R. Claassen. 2021. Cover Crop Trends, Programs, and Practices in the United States. Washington, D.C.: U.S. Department of Agriculture, Economic Research Service, Economic Information Bulletin 222, February.