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The Big Red Barn in the Great Green Field

Erik Ness

The environmental footprint of farming is huge; more than half of the continental U.S. is cropped or grazed. And while farming is at the root of many environmental problems, it can also be a powerful conserving force. One of the most intriguing opportunities to encourage this stewardship is the 2007 U.S. Farm Bill. The Ecosystem Marketplace finds out why.

The environmental footprint of farming is huge; more than half of the continental U.S. is cropped or grazed. And while farming is at the root of many environmental problems, it can also be a powerful conserving force. One of the most intriguing opportunities to encourage this stewardship is the 2007 U.S. Farm Bill. The Ecosystem Marketplace finds out why. Madison, Wisconsin—If you already believe that making law is akin to making sausage, be warned that some observers find Farm Bill legislation particularly alarming. Policy wonks, producers and pressure groups have been jockeying for position since before the ink was dry on the 2002 bill. But this time around, the real unknown is Brazil. The story of how Brazil crashed the farm bill party begins in 2001 at the Doha Round of World Trade Organization (WTO) negotiations. Agricultural subsidies dominate much of the Doha agenda, with many arguing that Western nations, by propping up their farmers with subsidies, are limiting one of the few economic arenas where developing nations might enjoy a competitive advantage. In 2003, Brazil formally complained to the WTO that the price support paid to U.S. cotton farmers was a violation of the Uruguay Round Agricultural Agreement, and the WTO ruled in favor of Brazil in September 2004. The Brazil ruling set up a collision course on several fronts. Chief among them is the fact that, while the White House supports cutting subsidies, trade liberalization is a tough sell to American voters. Since the ultimate burden of ensuring WTO compliance lies with the U.S. House and Senate, the Doha round of talks could stall unless Congressional legislators quickly find ways to keep both American and Brazilian farmers happy in the 2007 Farm Bill. For environmentalists, this challenge raises a tantalizing prospect: If billions of dollars in agricultural subsidies violate international trade law, could the money be redirected to conservation? In 2005, the U.S. government paid some $20 billion to American farmers, mostly for commodity crops such as corn, soybeans, cotton and rice. Even a small fraction of these commodity payments could pay big conservation dividends, but there is peril in opportunity. "It is an enormous challenge to design a program that really rewards and provides incentives for higher environmental performance as opposed to simply giving people checks for obvious things they are already doing," says Tim Searchinger, a senior attorney specializing in watershed protection at Environmental Defense. "I think there is a real risk that it would not end up being good, but it's also a real opportunity to structure one well."

From Draining to Restoring

Federal payments to American farmers began during the Great Depression when the agricultural collapse on the Great Plains led to government-backed price supports. The environmental calamity of the Dust Bowl also led to the belief that fighting erosion was a public benefit. In 1935, the Soil Conservation Service (renamed the Natural Resources Conservation Service (NRCS) in 1994) was formed to oversee the battle. In the decades that followed the Great Depression, agricultural policy oscillated between boosting production and managing surplus. When bounty eclipsed profits, various programs would remove acres from production and redirect them toward soil, water, forest, and wildlife conservation. But the primary focus of conservation was agricultural production, so even activities like draining wetlands were called conservation. Slow changes culminated in the watershed bill of 1985, when the Conservation Reserve Program (CRP) was founded to discourage the cultivation of marginal lands by paying farmers to remove land from production. The program also foots half the bill for planting permanent grasses, legumes, or trees as cover. Since its inception, CRP has become the nation's dominant conservation program, with refinements increasing its environmental payback by focusing on wetlands, stream buffers, and wildlife corridors. According to the United States Department of Agriculture (USDA), the Conservation Reserve Program annually prevents the erosion of 450 million tons of soil and has restored 1.8 million acres of wetlands. The 1996 farm bill strengthened CRP and also established the Environmental Quality Incentives Program (EQIP), which helps pay for environmental improvements. For example, if a dairy farm wanted to replace a dirt feed lot with a concrete lot draining into a manure-retention basin—an improvement benefiting both farm production and water quality—EQIP would help cover the cost. EQIP follows in a long tradition of conservation programs by providing support to farmers. But Michigan State agricultural economist Sandra Batie argues that, because it explicitly supports environmental objectives, EQIP could be considered the first real green payments program. Based, in part, on the popularity of EQIP, the shift toward green payments continued in 2002, when the Farm Security and Rural Investment Act pumped up conservation funding by 80 percent and launched the Conservation Security Program (CSP). Lauded by farmers, enviros and the NRCS, the Conservation Security Program recognized a crucial weakness in previous programs, which, instead of rewarding good stewards, often paid problem farmers to reform their ways. CSP, instead, is a three-tier system set up to award bigger payments to better stewards. CRP, EQIP and CSP represent the lion's share of agricultural conservation in the U.S. today, but a number of smaller targeted programs have also evolved over the last 10 years. The Wildlife Habitat Incentives Program (WHIP) encourages reclaiming wildlife habitat. The Grasslands Reserve Program (GRP) provides habitat for grassland birds and other species. The Farm and Ranch Land Protection Program (FRPP) helps fund conservation easements for working lands threatened by development. The Wetlands Reserve Program (WRP) supports landowners who protect, restore, and enhance wetlands. The general direction is progress, but funding shortfalls remain a consistent problem. "Historically conservation programs have always been cut when there has been a perceived need to cut taxpayer money going into agriculture," explains Batie. Farm conservation has been shortchanged 13.3 percent since 2002 according to numbers compiled by Defenders of Wildlife. In 2004, 151,716 landowners had met program requirements but were not funded—$4.48 billion in lost conservation opportunities. The revolutionary Conservation Security Program, originally authorized at $2.8 billion was docked more than 80 percent, to $489 million. Driven, in part, by a desire to reduce the dependency of agricultural conservation on public funding, the U.S. government is now hoping to link the conservation of ecosystem services on American farms with emerging markets for ecosystem services.

A New Era Dawns

In August of last year, U.S. secretary of agriculture Mike Johanns served notice that a new era of ecosystem markets was dawning at USDA. "I am announcing that USDA will seek to broaden the use of markets for ecosystem services through voluntary market mechanisms," he told a conservation gathering in St. Louis. "I see a future where credits for clean water, greenhouse gases, or wetlands can be traded as easily as corn or soybeans." Carl Lucero, national leader for clean water at NRCS and a participant in USDA's new Market-Based Environmental Stewardship Initiative, says that consistent shortfalls of conservation funding are one reason USDA began looking at market-based approaches. "Knowing we have limited funds, what other tools can we use as leverage to put more conservation on the ground?" he asks. "Farmers manage over 75 percent of our nation's land and are well accustomed to contractual arrangements for their agricultural products. If we were to look at our natural resources as commodities with a measurable value, then, through market-based approaches, farmers could voluntarily enter into business transactions to grow crops of water quality, air quality or even biodiversity. I believe farmers would be willing to do this; it's just a matter of having the infrastructure to make it happen." Among the exemplars touted by Lucero is the New York City Watershed Agricultural Program, which supports environmentally savvy management by farmers in the watershed providing the city's drinking water. But establishing similar markets for a wide range of ecosystem services—such as carbon sequestration, water filtration, and the provision of endangered species habitat—is challenging. "We have great examples but no practical experience," he admits. "It's a slow process and we're not very far along." One of the main challenges facing advocates of a widespread approach to agricultural payments for ecosystem services is the lack of quantitative data linking green payment schemes with environmental benefits. This void presents a variety of problems for those hoping to develop markets for ecosystem services on agricultural lands. "Could you have ecosystem services in name but not in practice and basically retain business as usual?" asks James Salzman, an environmental policy specialist at Duke Law School. If you can't quantify the benefits it's hard to justify the expense politically, and even harder to develop markets. To address this shortcoming, NRCS began the Conservation Effects Assessment Program (CEAP) in 2004. CEAP aims to assess many common practices such as conservation buffers, erosion control, wetlands conservation and restoration, and various management strategies for grazing land, tillage, irrigation water, nutrients, and pests. The CEAP objective is laudable and widely supported, but hard to get right. A panel reviewing the program recently recommended an immediate change in direction. Concerned that compiling the many outcomes of each individual conservation program would be, "a massive and expensive task fraught with problematic assumptions," the panel advocated shifting the objective to, "a system capable of producing rigorous assessments of options for implementing conservation programs in the future." Undaunted by the clear challenges associated with quantifying the relative environmental benefits of different land use regimes (a key issue for market-based conservation), NRCS is moving ahead in its funding of Conservation Innovation Grants to help support nascent markets. In its' two year existence, seven market-based demonstration projects have already been funded, and that number could more than double after this year's cycle. In Florida's Lake Okeechobee watershed, for instance, the NRCS put up $1 million, the state and a regional water management district each staked $500,000, and World Wildlife Fund (WWF) contributed $300,000 to explore whether ranchland could be used to tackle regional water management problems. The area currently has too much water sheeting off the land and into the lake, carrying phosphorous with it as it goes. The state plans to build large expensive retention basins to prevent the problem. Ranchland, properly managed, could perform some of the same services by building and restoring wetlands to slow the water down. For Sarah Lynch, the WWF project director, the project has only reinforced the environmental value of ranchers and farmers. "They have a tremendous knowledge of the landscape. How do we create an economic opportunity for them to forestall development?"

Warts and All

Given the confluence of trade negotiations, budget crunches, and the gaining credibility of environmental markets, what are the prospects for significant changes in the next farm bill? "Many, many agricultural organizations have come out and said they just want an extension of the existing farm bill," says Batie. "If you had an enormous budget, then you could convert our agricultural programs into more green payment programs and you wouldn't get a lot of resistance because you could pay everybody to do something." But some estimates are that a radical realignment of current subsidies could drop land values by 25 to 30 percent, which sets producers—and their bankers—on edge. "I don't think all the stars have aligned," says Batie, who expects a slow movement towards green payments. Trade is another wild card. Apart from the shaky domestic constituency for trade liberalization, the working assumption that green payments would be immune from WTO challenge may not be correct. David Blandford, an agricultural economist from Penn State, explains that environmental exceptions are governed by what's called the green box, which limits what you can pay producers: countries can pay for compliance costs or lost income stemming from environmental programs. "The problem is you can't pay them any incentives," he says. Under this interpretation, the green payments model of the Conservation Security Program may not fit into the green box. "That is quite a kicker," says Blandford. "We need to revisit these green box criteria if we're going to use the environmental programs and make a switch away from traditional sorts of commodity programs towards environmental programs for agriculture." The devil is in the details, and the details are likely to be worked out via politics. When it comes to duking it out in the political arena, it is clear that environmental interests and the farm community want different things from green payments. The farm community wants income support, and is concerned about the shortcomings of the current commodity programs, which rewards producers unevenly and distorts land values. The environmental community wants a stronger link between payments and performance and better targeting to achieve a critical mass of environmental improvement. "The most urgent priority, however, is to put into practice what we already know, with all the accompanying warts," Craig Cox of the Soil & Water Conservation Society told a workshop last year. "We must learn by doing, and big mistakes will be made, but we cannot afford to wait for certainty or even a high level of comfort. We must embrace compromise because doing better today is more important than doing best tomorrow." Erik Ness writes about science and the environment from his home in Madison, Wisconsin. His work has appeared in a wide range of publications, from Discover and Prevention to Conservation in Practice and Grist. First published: March 21, 2006

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